Paul Leatherbarrow, Liverpool
Following the publication of the Independent Public Service Pensions Commission’s recommendations for public service pensions, Lord Hutton stated, “We need to ensure the sustainability of good quality public service pension schemes?”
According to official estimates, there is a £4 billion gap between the pension payments currently being made to retired public sector staff and the total of employer and employee contributions. The shortfall is projected to rise to £10.3 billion over the next five years and is already 20 times larger than it was in 2005. George Osborne, the Chancellor, is likely to welcome the report although it may not satisfy critics who want public sector pensions brought into line with the private sector, where deals are usually less generous. “It is not a question of whether we need reform, but what sort of reforms we need”, Lord Hutton of Furness told delegates in his keynote address to the National Association of Pension Funds investment conference. He emphasised that the reform was for the long term, “not in response to the fiscal pressures currently facing the country, but in response to the pressures on these schemes that have built up over decades”. He said that the current final salary schemes are not suitable for a modern workforce.
As they benefit high fliers unfairly, expose the taxpayer to the risk that salaries will rise more quickly than expected and create a barrier to employees moving from the public to the private sector. The current defined benefit schemes should be replaced by new career average schemes, pension ages linked to the state pension age and that a clear cost ceiling should be set, basing this on the percentage of pensionable pay provided by the taxpayer. Lord Hutton stated “It is only right that government, taxpayers and members are better informed about the financial health of these schemes and that they can have confidence that they are being run correctly.”
When asked if his recommendations would be modified by government. Lord Hutton replied his report was not “pick and mix”. He said his recommendations should not be “cherry-picked”, as they would not then be his reforms and proposals, The public sector union, Unison, which has 400,000 members in the health service and 850,000 in schools and local government, warned that requiring staff to pay more towards their retirement would force many to pull out of pension schemes. State employees have suffered pay freezes, job cuts and soaring inflation and will be unable to afford to contribute more of their salary towards their pensions, “If public sector workers did not contribute to their pension funds they would cost the taxpayer billions in the end because they would be on means-tested benefits,” she added.
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