Lord Hutton has recommended an increase in public sector workers’ contributions to pensions and a rise in the retirement age.
In his interim Public Sector Pensions Review, Hutton says the reforms are needed to address the affordability and risk sharing issues surrounding public sector defined benefit (DB) pensions.
The report aims to address the question of whether public sector pensions are “on a fair and sustainable footing that provides the best possible value for money”.
Hutton, who was asked by the government to conduct the inquiry, recommends that the most effective option that may provide short-term savings will be to increase member contributions.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “Raising contributions is the obvious short-term way to relieve financial pressures.
“Lord Hutton has heeded our warnings about not placing too much of the burden on the low paid, recognising the risk that many may opt out of pensions altogether. Reforms should be focused on those who are set to gain the most out of the current system.
“The report dispels some of the myths about these pensions but is realistic about the need to reshape them. The long-term solution to public sector pensions mustn’t become a race to the bottom. All workers deserve a good workplace pension, whether private or public sector.”
General secretary of the Trades Union Congress (TUS), Brendan Barber said: “Public servants will be angered by the review’s call for them to pay more for less generous pensions.
“Public sector workers are already facing job cuts, a pay freeze and increased workloads as they are expected to do more with less. They have already had the value of their pensions cut by the switch to CPI indexing, which will slice a little off their pension every year.
“At a time when inflation is breaking targets and pay is already frozen, asking people to pay immediate increased contributions adds up to a significant pay cut.”
The report also suggests that long-term structural reform can’t be dealt with through final salary defined benefit schemes, and a range of alternative structures will be considered including defined contribution (DC) schemes, and hybrid DB and DC schemes.
Hutton said that his final review, due in 2011, would consider raising the pension age in line with the longer working lives.
Segars said: “We look forward to Hutton’s final report. We expect it to recommend that retirement ages for public sector workers will head upwards.”
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