Adapted for Fijipensioners Grey Power from UK Treasury Report

Lord Hutton of Furness’ proposals for comprehensive, long-term structural reform of public service pension schemes.

The final report of the Independent Public Services Pension Commission follows a comprehensive nine-month review. It sets out a number of detailed recommendations to the Government on how public service pensions can be made sustainable and affordable in the future, while providing an adequate level of retirement income.

The main recommendation of the report is that existing final salary public service pension schemes should be replaced by new schemes, where an employee’s pension entitlement is still linked to their salary (a “defined benefit scheme”) but is related to their career average earnings, with appropriate adjustments in earlier years so that benefits maintain their value.

The report suggests that it should be possible to introduce these new schemes before the end of the Parliament, in 2015, while allowing a longer transition, where needed, for groups such as the armed forces and police.

Other key recommendations in the report include:

  • Linking Normal Pension Age (NPA) in most public service pension schemes to the State Pension Age;
  • Introducing a Normal Pension Age of 60 for those members of the uniformed services – armed forces, police and firefighters – who currently have a NPA of less than 60;
  •  Setting a clear cost ceiling for public service pension schemes – the proportion of pensionable pay that  taxpayers will contribute to employees’ pensions – with automatic stabilisers to keep future costs under more effective control;
  • Honouring, in full, the pension promises that have been earned by scheme members (their “accrued rights”) and maintaining the final salary link for past service for current members;
  • Introducing more independent oversight and much stronger governance of all public service pension schemes;
  • Encouraging greater member involvement in consultations about the setting up of new schemes, and in the running of schemes; and
  • Overhauling the current legal framework for public service pensions to make it simpler.

Publishing the report, Lord Hutton said:

“These proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs.

“Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.

“The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.”

Background to the Report

1. Lord Hutton of Furness was commissioned by the Chancellor, George Osborne, at the June 2010 Budget to carry out a review of public service pensions.

2. The Commission published an interim report on 7 October 2010 which found that the current public service pensions structure has been unable to respond flexibly to rising pensions costs in the past few decades, and that the current final salary design feature of public service pensions is fundamentally unfair to those without large salary increases during their career. It also acknowledged the growing gap between pensions in the public and private sector, yet asserted that public service pensions provision should not become “a race to the bottom”. It recommended long-term structural reform to public service pensions and ruled out traditional final salary defined benefit schemes and funded, individual account, defined contribution models for all employees. The Government accepted the report’s conclusions and affirmed its commitment to maintaining some form of defined benefit pension provision for public service employees. The interim report is available on the Commission website.

4. As regards the cost of implementing the new schemes, the report notes that additional resources – people and money – will be needed to implement these reforms, but the details will be for the Government to determine.

5. Pension Facts:

  • About one in five UK citizens has some entitlement to a public service pension.
  • Public service schemes paid out £32 billion in 2008-09, about two thirds of the cost of the basic State Pension.
  • The average pension paid to pensioner members is around £7,800 per year.
  • Around half of pensioners receive less than £5,600 per year.
  • The highest-earning fifth of Local Government Pension Scheme pensioners get almost a third more in pensions per £100 of contributions than the lowest-earning fifth.
  • Current pensioners can expect to spend about 40 to 45 per cent of their adult lives in retirement if they retire at 60, compared with about 30 per cent for pensioners in the 1950s. If scheme Normal Pension Ages are linked to the State Pension Age as the Commission recommends, the proportion of life in retirement is projected to remain at about a third over the next five decades.
  • Around 85 per cent of public service employees have some form of employer-sponsored pension provision, compared to around 35 per cent in the private sector.

Grey Power says:

Fijipensioners support an independent inquiry in Fiji such as that of Lord Hutton’s for the public sector pensions in the UK. Not only was this inquiry independent and transparent, it was conducted with consultations with a wide sector of affected people, including unions and employers. These consultations did not end with the publication of the Report; they are now continuing with employer organizations and unions to ensure that the changes contemplated in the pensions scheme are imposed with as little disruption as possible and with the minimum of harm to the rights of pensioners, already existing as ‘accrued rights’.