Lord Hutton Presents Interim Findings on Public Sector Pensions

Lord Hutton’s Independent Public Service Pensions Commission has published its interim findings in a review of how to cut the rising cost of public sector pension schemes. Public sector workers will need to make higher contributions to their pension schemes if the Government wants to make short-term savings, although any increase should protect the low paid and exempt the armed forces, according to the Commission’s interim report.

Lord Hutton, a former Work and Pensions Secretary in the Labour Government, was commissioned by the Chancellor of the Exchequer, George Osborne, to lead an independent review into public sector pensions earlier this year.

The report calls for a new model of pensions to be introduced that shares the risk more evenly between the Government and workers.  But it has ruled out replacing final salary pensions with individually funded defined contribution ones, as has happened in the private sector. 

Commenting on the report, Lord Hutton said there is a “strong case” for public sector workers to be made to increase their monthly contributions to tackle the £1tn black hole in the public pension pot and for public sector workers’ retirement age also to be raised to 65, to reduce the cost to the taxpayer as life expectancy continues to rise.

But he rejected the frequently made claim that public sector pensions are gold-plated:

“The average pension paid to pensioner members is about £7,800 a year. About half of pensioners receive less than £5,600 a year, and 90% of pensioners receive less than £17,000 a year. Although these figures are partly accounted for by part-time or part-career working, these pensions provide a modest - not an excessive - level of retirement income.

“I also reject the argument that the downward drift of pensions in the private sector is justification that pensions in the public sector must follow the same course. I have rejected a race for the bottom,” he added.

The final report will consider a number of other long-term options to restructure the system, including a career average scheme rather than one based on the salary immediately before retirement. It will be published in time for the Budget in 2011.

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