In the Independent review published today, Lord Hutton has recommended that public sector pensions should no longer be related to final salaries, but by 2015 they should be connected to average career salaries of workers.
Hutton was commissioned to investigate pension schemes covering civil servants, the NHS, teachers, local government staff, the police, armed forces and the fire service.
Hutton is also expected to advocate that public sector staff should contribute more money to retirement schemes, with suggestions that this will be between 1% and 3%.
The review has of course been met with concern by some public sector workers and unions. The GMB believe that raising the contributions percentage significantly could lead to strikes.
“Moving to career average does not in itself save costs. Everything depends on the accrual rate and revaluation method used to calculate career average pensions,” the union also argued.
Charles Cotton CIPD performance and reward advisor, says:
“No matter how much more affordable new public sector pension arrangements are made, if employees don’t value and appreciate the employer investment then the money is simply being wasted. We understand Lord Hutton’s recommendation that the primary purpose of public service pensions should be to ensure adequate levels of retirement income for public service pensioners. However, we feel there is a danger he is too readily dismissing the role good pensions play in supporting the delivery of high quality public services.
“There needs to be greater recognition on the part of employers and unions of the scale of the challenge in communicating to public sector workers the value of the new pension arrangements. Employees are being asked to contribute, on average, 3% more for less at a time of pay freezes, increased living costs and when their benefits will be uprated by CPI rather than RPI – but this does not take away from the valuable nature of public sector pensions.
“Public sector pensions, even after these reforms are implemented, will remain generous and cost-effective for public sector workers. Communicating this fact will play an important part in limiting the risk of industrial action in the short-term. However, there is a more important long-term gain in ensuring public sector workers are clear of the immense value of their pension provision, and the contribution that their employers make to it.
“We welcome Lord Hutton’s thorough and considered report. The challenge for government now is to ensure that the large cost of these pensions, even after the Hutton reforms are implemented, delivers value for money for the taxpayer. Meeting this challenge depends on their value to public sector workers being appreciated. Without this, they can’t effectively drive recruitment, retention and motivation of high performing employees, dedicated to consistent delivery and continuous improvement of high quality public services.”