Hutton report calls for sweeping changes to public sector pensions

Millions of public sector employees should work for longer and receive smaller pensions, according to a government-commissioned report over which unions have threatened widespread industrial action.

Former Labour pensions secretary Lord Hutton’s landmark report, published this morning following a nine-month review, says that public sector pensions should no longer be related to final salaries and should instead be related to average salaries over a career.

Lord Hutton was asked to make recommendations for the future of public sector pensions and focused on large pension schemes covering civil servants, the NHS, teachers, local government staff, the police, the armed forces and the fire service.

“Pensions based on career-average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final-salary schemes. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs,” Lord Hutton said.

He stressed that pensions earned so far should retain their link with final salaries but pensions earned in the future should be built up in new career-average schemes.

While business groups welcomed the report, with CBI director-general John Cridland calling it a “big step forward towards making public sector pensions affordable and sustainable in the long-term”, Cridland’s hopes that a “consensus can form around it” seem unlikely given the trade unions’ reaction.

General secretary of Unison Dave Prentis 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.”

Prentis pointed out that local government and NHS pension schemes were renegotiated in 2006 to make them sustainable and affordable: “Both schemes are cash rich – more is going in than coming out.”

TUC general secretary Brendan Barber added: “The recommendations come at a time when the Government has already signalled its intention to ask public service workers to stump up an extra £2.8 billion a year in pensions contributions. The Government must listen to the concerns of public sector employees, and avoid imposing changes that will leave workers with poorer pensions, and lead to people dropping out of schemes, leaving them with no provision in their old age.”

For more information on pensions read XpertHR’s pensions reference manual.

Read XpertHR’s Pay Intelligence blog on the Hutton report.

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