Public Sector Pensions in the Real World

Posted on: 10.03.2011    12:44:02

Six million public sector workers are to lose their generous final salary pension schemes and will have to work for up to six years longer under plans to ease the state’s £30 bn pensions liability.

A government-commissioned report by Lord Hutton, the former Labour pensions secretary, proposes sweeping changes to state pensions that will mean nurses, doctors, teachers, local government and other public sector workers will have to pay more into their pension pots, retire later and many will receive less when they do.

All state employees in the UK will be affected, creating the first legal basis for simultaneous strike action across the unions, who have universally condemned the report.

“If we go on along the path we are, which is basically to deny that costs are rising, to deny that there is rising life expectancy, and just assume we can carry on, we are heading for the rocks and I don’t want that to happen.

“The solution to this problem is not a race to the bottom, it’s not to hack away at the value for public service pensions, it’s to manage the risks and costs sensibly and I think the biggest risk by far to the viability of these schemes going forward is rapidly rising life expectancy.

“In dealing with that problem we have a number of choices: we can cut the benefits of pensioners, we can increase the contributions significantly. I think the responsible thing to do is accept that because we are living longer we should work for longer.”

The plans, published in a 200-page document on Thursday, recommend:

• The normal pension age of 60 should increase to match the state pension age, which by 2018 will be 65 for men and women, rising to 66 in 2020. The changes should be brought in by the end of this parliament.
• The most generous schemes that link pensions to final salaries – the so-called “gold plated” versions – will be scrapped and replaced with payments based on career averages. Hutton said the system would be “fairer” compared with private sector pension schemes.
• Uniformed workers — including the armed forces – should not qualify for their full pensions until they are 60. Currently, the armed forces can draw a full pension after 22 years, and must retire at 55. They should get longer than the four-year target for other workers to make the changes.
• Ministers should get more powers to raise employee contributions if schemes are becoming unaffordable but there will be moves to protect the lowest paid from proposed increases in contributions.

The Cabinet Office minister, Francis Maude, and chief secretary to the Treasury, Danny Alexander, made it clear in the first pensions negotiating meeting at the beginning of the month that they would not reconsider the decision to increase contributions and the change from RPI to CPI, leaving some unions arguing that the talks are meaningless.

It is understood that strike action is being pencilled in for June by a number of Unions.

To those in the private sector these are long overdue changes and will be welcomed.

 

Author: Chris Slay

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