Public service pension overhaul urged by Hutton report Skip to main content

Public service pension overhaul urged by Hutton report

Lord Hutton Lord Hutton's report could pave the way for huge changes to the public sector pension schemes

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A major review of public sector pensions is expected to recommend that people pay higher contributions, work longer and earn less in retirement.
The report is expected to say the pensions should be linked to career average salaries, not final salaries.
The review was carried out by former Labour minister Lord Hutton.
The government has already adopted his initial recommendation that public service staff pay higher pension contributions, averaging an extra 3%.
The expected recommendations have already drawn a hostile response from trade unions - and brought the prospect of industrial action in response.
Dave Prentis, general secretary of the Unison union, said: "This will be just one more attack on innocent public sector workers who are being expected to pay the price of the deficit, while the bankers who caused it continue to enjoy bumper pay and bonuses."
"On top of a pay freeze, and the threat of redundancy, they now face a pensions raid. This brings the threat of industrial action closer," he said.
University lecturers, who are already planning to strike over separate but similar changes to their own pension scheme, said good pensions were essential, not an optional extra.
"We need to be doing all we can to try and keep the best and brightest young scientists, academics and researchers in the country, not attacking their few benefits," said Sally Hunt, general secretary of the University and College Union (UCU).
Assumptions

Pension schemes explained

  • Final-salary scheme: Guaranteed pension based on earnings at end of your career and length of service
  • Career average scheme: Guaranteed pension based on your average pay over your career
  • Defined contribution scheme: Determined by contributions and investment returns. Usually worth less than final-salary pensions
Lord Hutton, a former Labour pensions minister, was asked by the coalition government to conduct a review of public service pensions soon after it was elected last year.
The pension schemes he examined provide an income in retirement for staff in the civil service, NHS, local government, education, police, armed forces and fire service.
The principal finding in his initial report, published last October, was that the continued rise in longevity meant that schemes were becoming too expensive, especially as they are mainly funded from taxation.
However he dismissed a number of common assumptions.
He argued that there was no evidence that public sector staff were paid less than staff in the private sector to offset better pensions.
On the other hand, he rejected the idea that public service pensions were "gold plated", pointing out that the average pension in payment was modest at around £7,800 a year.
And he slapped down suggestions from employers groups that public service pensions should be dragged down to the level of inferior private sector pensions, describing this as a "race to the bottom".
Lord Hutton also pointed out that the long-term cost of funding public service pension schemes had already been cut by 25%.
He pointed to measures such as uprating pensions in line with the typically lower Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI).
He also said some big schemes had already decided to raise the normal pension age for new recruits to 65 rather than 60.
http://www.bbc.co.uk/news/business-12687489
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