Work longer, pay more, get less: a pension offer civil servants can't refuse?

As you'd expect, Lord Hutton's pension report has gone down badly in the public sector. But what's the alternative?

by James Taylor
Last Updated: 19 Aug 2013
Lord Hutton's proposed public sector pension reforms may have explosive consequences (if the Government takes them up, which it almost certainly will). Public sector unions are already up in arms about his plan to abolish final salary schemes, while forcing civil servants to work for up to six years longer and stump up higher contributions – so there's presumably a very real prospect of mass strike action this summer. Hutton argues that the new system is fairer across the board - and private sector employees are likely to agree. But either way, since we clearly can't afford to maintain the current set-up, something has to give...

After a nine-month review, Hutton has recommended that the final salary pensions enjoyed by some in the public sector (now almost unheard of in the private sector) should - by 2015 - be replaced by a pension linked to career average earnings. He claims this is fairer to those civil servants at the lower end of the spectrum, whose salary doesn't go up as much. He also thinks the normal pension age should be linked to the state pension age - so some staff would see their pension age jump to 65, then to 66 by 2020, and subsequently to 68. The theory is that there’ll eventually be a limit to how much the taxpayer will have to cough up - so if people keep living longer, contributions will have to go up, or pay-outs will be smaller, or the pension age will have to rise again.

All of which might sound quite sensible, in principle - and many will feel that public sector workers will still get a pretty good deal on pensions, particularly compared to some of the schemes in the private sector (Hutton said he'd deliberately ignored calls to equalise the two, arguing that a 'race to the bottom' was not a solution). And he's got the thumbs-up from the National Association of Pension Funds, which said his proposals 'strike the right balance between fairness and cost'.

However, the public sector unions are distinctly unimpressed. They argue that this is just another kick in the teeth for a group that's already enduring a pay freeze, plus the threat of job cuts and higher pension contributions - not to mention the same soaring prices that we're all grappling with. And with these changes set to affect public sector workers across the board, co-ordinated strike action looks a strong possibility; the GMB's Brian Strutton said Hutton's report 'might well light the blue touch paper for industrial action'. Just what we need.

The simple fact remains, though, that if people are living longer, and thus the cost of pensions goes up, people will need to work longer to pay for it and can expect less generous pay-outs - both in the public and private sector.

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