10.03.11

Commission Publishes Its Final Report on Public Sector Pensions

The Independent Public Service Pensions Commission has published the final report of its inquiry into public sector pensions.

It takes the view that given the continuing increases in average life expectancy, current public sector pension schemes are no longer tenable or affordable for taxpayers in the long term.

  • The Commission which was led by Lord Hutton, a cabinet minister in the previous Labour Government, sets out its proposals for comprehensive reforms of the existing arrangements. Its 27 recommendations include: The Government should honour in full the final salary pension promises that have already been accrued by scheme members.
  • Switching public sector workers out of their current final salary pensions into ones based on career average earnings for future service as soon as practical.
  • Raising the Normal Pension Age for majority of public sector staff to 65 and then linking it to increases in the state pension age. But raising the pension age for the uniformed services (the armed forces, police and firefighters) to 60, from 55 at present.
  • Ministers setting a clear cost ceiling for the new schemes going forward, and suggests this should be the percentage of pensionable pay paid by the taxpayer for those in the schemes with a system of automatic stabilizers built into the schemes’ design to keep future costs under effective control.
  • Uprating the pension benefits in line with average earnings during the accrual period for active scheme members, but switching the indexing of pensions in payment post-retirement to prices.
  • Introducing tiered contribution rates for higher and lower earners.
  • Encouraging Flexible retirement by giving members a greater choice over when they can start drawing their pension benefits so that they can choose to retire earlier or later than their Normal Pension Age with their pension adjusted on an actuarially fair basis.
  • The Commission is not proposing a single public service pension scheme but says that over time all public service pensions should move towards a common framework.

Lord Hutton says in the report that the package being proposed will ensure that public sector workers continue to have access to good pensions, while taxpayers benefit from having a greater control over their costs.

Initial reaction to the 215 page report and its recommendations has been predictably mixed.

Brendan Barber, General Secretary of the TUC said that public sector workers feared that the “the Government is simply going to cherry-pick elements of Lord Hutton’s report – choosing the recommendations which will result in them paying more, working longer and receiving poorer pensions.”

Joanne Segars, Chief Executive of the National Association of Pension Funds supported Lord Hutton’s view that his recommendations “strike the right balance between fairness and cost” and ”would avoid a race to the bottom.”

Read TAEN’s Press Release

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