IFS: public sector pensions ‘remain generous’ after Hutton reforms

10 Apr 15

Controversial public sector pension reforms being introduced today for teachers and NHS staff still leave the schemes ‘relatively generous’ compared to the private sector, an analysis has found.

The examination of the reforms by the Institute for Fiscal Studies concluded the changes – which include a move to a career average defined benefit pension from one based on final salary as well as higher employee contributions – had radically changed how pensions for members of these schemes are calculated. Similar reforms to the Local Government Pension Scheme came into effect last April.

In their analysis, researchers Jonathan Cribb and Carl Emmerson said the reforms represented the final step of reforms initiated following Labour peer Lord Hutton’s review in 2011.

Until now, members of the NHS and teachers’ pension schemes have accrued a pension that paid a fraction of their final salary from their normal pension age. For those who joined the NHS scheme before April 2008, or the Teachers’ Pension Scheme before 1 January 2007, this age was set at 60, while it was 65 for those joining more recently following changes introduced by the last Labour government.

Among the latest reforms is a change to set the normal pension age in the schemes to the same level as the state pension age. However, the fraction of earnings accrued in pension for each year of service has been made more generous.

All these changes only apply to entitlements being accrued in the future, and those within 10 years of their normal pension age on April 1 2012 were unaffected.

According to the IFS, those more than 10 years from their normal retirement age in April 2012 and who joined the pension schemes prior to Labour’s reforms will be made worse off on average. This was primarily because they will see an increase in their normal pension age from 60 to at least 66, meaning they would have to pay into their pension for at least six more years in order to receive their full pension.

However, those who joined the schemes after Labour’s reforms will only slightly lose out, as the increase in pension age when the state retirement age rises will be offset by higher accrual rates. On average public sector employees still accrue more generous pensions than their private sector counterparts, the analysis concluded.

 

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