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07/10/2010
Higher Contributions For Public Pensions Loom
An independent commission led by Lord Hutton, recommends that members of public sector pension schemes should pay higher contributions.
The commission set up the initial recommendation to consider ways to cut the rising cost of public sector pension schemes.
The schemes include millions of public servants including those in the NHS, civil service, and local government.
Other longer term considerations are also being considered.
Lord Hutton highlighted the key problem as people living longer in retirement, so their pension funds have to sustain them for much longer.
He also described the final-salary nature of the schemes as "fundamentally unfair".
He commented: "[They] can lead to high flyers getting almost twice as much back in pensions than those on more modest earnings for the same amount of pension contributions.”
After setting up the commission, Chancellor George Osborne said that the projected rise in the cost to taxpayers of public sector pensions was "unsustainable".
Many workers argued that they have accepted lower pay so they could get in the private sector in order to benefit from better pensions.
However Lord Hutton responded: "There is no evidence that pay is lower for public sector workers to reflect higher levels of pension provision."
Possible long term changes being considered by Lord Hutton's pensions commission include: copying the Swedish and Dutch examples of defined-contribution schemes, changing the public service schemes from a final-salary to a career-average structure, and raising normal pension ages beyond their current levels as longevity increases.
The recent move to uprate pensions in line with the consumer prices index (CPI) rather than the retail prices index (RPI) has reduced 15% from the cost of the schemes.
Together with other amendments, such as raising the pension age, the schemes now cost 25% less to fund than they did a few years ago.
"All these past reforms, the current pay freeze and planned workforce reductions will reduce the future cost of pensions," the report said.
"The gross cost of paying unfunded public sector pensions is expected to fall from 1.9% of GDP in 2010-11 to 1.4% of GDP by 2060."
Lord Hutton also pointed out that the average pension in payment is currently £7,800 a year, rejecting the claim that public sector pensions are gold-plated.
Joanne Segars, of the National Association of Pension Funds (NAPF) said: "The report dispels some of the myths about these pensions but is realistic about the need to reshape them.
"All workers deserve a good workplace pension, whether private or public sector.”
The final report will be published before the 2011 Budget.
(BMcN)
The commission set up the initial recommendation to consider ways to cut the rising cost of public sector pension schemes.
The schemes include millions of public servants including those in the NHS, civil service, and local government.
Other longer term considerations are also being considered.
Lord Hutton highlighted the key problem as people living longer in retirement, so their pension funds have to sustain them for much longer.
He also described the final-salary nature of the schemes as "fundamentally unfair".
He commented: "[They] can lead to high flyers getting almost twice as much back in pensions than those on more modest earnings for the same amount of pension contributions.”
After setting up the commission, Chancellor George Osborne said that the projected rise in the cost to taxpayers of public sector pensions was "unsustainable".
Many workers argued that they have accepted lower pay so they could get in the private sector in order to benefit from better pensions.
However Lord Hutton responded: "There is no evidence that pay is lower for public sector workers to reflect higher levels of pension provision."
Possible long term changes being considered by Lord Hutton's pensions commission include: copying the Swedish and Dutch examples of defined-contribution schemes, changing the public service schemes from a final-salary to a career-average structure, and raising normal pension ages beyond their current levels as longevity increases.
The recent move to uprate pensions in line with the consumer prices index (CPI) rather than the retail prices index (RPI) has reduced 15% from the cost of the schemes.
Together with other amendments, such as raising the pension age, the schemes now cost 25% less to fund than they did a few years ago.
"All these past reforms, the current pay freeze and planned workforce reductions will reduce the future cost of pensions," the report said.
"The gross cost of paying unfunded public sector pensions is expected to fall from 1.9% of GDP in 2010-11 to 1.4% of GDP by 2060."
Lord Hutton also pointed out that the average pension in payment is currently £7,800 a year, rejecting the claim that public sector pensions are gold-plated.
Joanne Segars, of the National Association of Pension Funds (NAPF) said: "The report dispels some of the myths about these pensions but is realistic about the need to reshape them.
"All workers deserve a good workplace pension, whether private or public sector.”
The final report will be published before the 2011 Budget.
(BMcN)
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