The new public sector pensions commission must take steps to improve transparency over the cost of pension provision and establish a clear framework for reform, the CBI has said.
Over the weekend, chancellor George Osborne revealed a new independent pensions commission, headed by the former defence minister John Hutton, would be created to lead pension reform across the public sector.
Speaking ahead of the Emergency Budget, to be unveiled tomorrow, Katja Hall, director of HR policy at the CBI, exclusively told Personnel Today businesses “warmly welcomed” the new pension commission, but action had to be taken now and a lot could be learnt from how the private sector has already reformed pensions.
Her call follows the report by the Office for Budget Responsibility (OBR) last week, which projected the cost of spending on net public service pensions will more than double in the next five years, from £4bn in 2010-11 to £9.4bn in 2014-15.
The CBI’s own calculations reveal the total liability of the unfunded schemes to be at least £1 trillion.
Hall said: “The OBR report only confirmed what we and others have been saying for many years – costs are spiralling without proper measurement or control.
“It is far better to face up to the issue than to hide behind the long-term nature of the scheme and leave it to tomorrow’s leaders – in business or government – to sort out the problem. We can’t continue with our heads in the sand.”
She warned the public sector’s lack of transparency had enabled it to “draw a veil over the real position”, and the first steps by the new commission must be to improve transparency over pension costs.
“Once we know where we stand, we can then have the rational debate we need about what pension provision is sustainable,” she said.
But Hall insisted the commission should not be used to impose a redesigned pension scheme on government organisations, but should instead suggest guiding principles and parameters for change, allowing public sector employers to shape their own reforms.
She said: “Given the variety of public sector pension schemes and workforces, it would not be right for it to take on the task of detailed scheme design – that must rest with public sector employers themselves, working with employees. But the commission should establish the framework for rethinking public sector pensions over the course of this parliament.”
Hall added many private sector firms had already taken action to improve the quality and reduce the cost of their pension provisions, and the government should follow this best practice.
“Any company that has taken the tough step of making its pensions more affordable will tell you the process of reform will not be rapid or easy,” she said. “But they will also tell you it makes their business stronger in the long-term, and employees know where they stand.
“Government is no different, and no matter how hard the journey, it is essential that it is started now. The sooner the commission gets to work, the better.”