10 March 2011
Final salary pension schemes in the public sector should end and a cap be put on the amount taxpayers contribute, according to Lord Hutton’s review of pensions, published today.
Hutton’s final report on reforming public service pensions follows a nine-month review commissioned by the coalition government. His proposals are likely to be used by the chancellor in the Budget on March 23.
The report by the former Labour work and pensions secretary says final salary pension schemes should be replaced with ones based on career-average earnings, while a ‘clear cost ceiling’ should be set for the proportion of pensionable pay paid for by taxpayer.
Other recommendations include: linking the normal pension
age in most schemes to the state pension age; introducing a normal pension age
of 60 for the armed forces, police and firefighters; introducing more
independent oversight and stronger governance of all schemes; and simplifying
the legal framework.
Hutton said: ‘These proposals aim to strike a balanced deal between public service workers and the taxpayer.
‘The current model of public service pension provision is clearly not tenable in the long term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.’
The changes could be introduced before the end of the current Parliament in 2015, although a longer period of transition should be allowed for groups such as the armed forces and police, Hutton suggests.
Public sector unions expressed fears about how the government would respond to the review, particularly after changes already proposed.
FDA general secretary Jonathan Baume said: ‘Senior public servants will be suspicious of agreeing changes when the government is already demanding substantial increases in contribution rates in order to claw back £2.8bn in pension costs, whilst at the same time slashing the value of pensions by at least 15% simply by changing the index for annual uprating from the Retail Price Index to the Consumer Price Index from April this year.
‘Negotiations in the coming months will be very difficult, and no public sector union has ruled out the possibility of industrial action.’
Unite said the coalition was likely to ‘cherry pick’ parts of the report ‘to fit its own Right-wing agenda’, while the Public and Commercial Services union said any increases to employee contributions or the pension age would be ‘an unfair and unnecessary tax on working in the public sector and will be fiercely opposed’.
TUC general secretary Brendan Barber added: ‘The pension schemes are already sustainable and their cost as a proportion of gross domestic product is set to fall over time. The government must listen to the concerns of public sector employees, and avoid imposing changes that will leave workers with poorer pensions, and lead to people dropping out of schemes, leaving them with no provision in their old age.’
