Hutton tries to kill off final salary pensions

Pensions look set to be linked to average earnings, if the recommendations are taken up by the government.
Pensions look set to be linked to average earnings, if the recommendations are taken up by the government.

By Ian Dunt

Lord Hutton has recommended the scrapping of final salary pensions, in a widely-expected move likely to trigger anger among public sector workers.

The peer's long-awaited plans for public sector pensions would see average career earnings replace a final salary scheme with "appropriate adjustments" in earlier years so that benefits maintain their value.

"The current model of public service pension provision is clearly not tenable in the long term," Lord Hutton said.


"There is a clear need for reform. 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."

Hutton report in full

The move was met by instant anger from teaching unions, who argued that any injustices in the final-salary system could be rectified by reform, rather than wholesale change.

"We haven't heard any good reasons for abandoning final salary pensions in the public sector," said Association of Teachers and Lecturers (ATL) general secretary Mary Bousted.

"If the teachers' pension scheme needs to be made fairer so that a small number of highly paid head teachers do not benefit disproportionately then it should be amended rather than totally scrapped."

Issue of the day: Public sector pensions

Sally Hunt, general secretary of UCU, which recently announced strike plans by lecturers in 63 universities this month, said the plans betrayed the ethos of public sector pay compromise.

"The reason UCU members are prepared to take their first national strike action for five years is because they see their pensions as deferred pay," she said.

"Their pensions compensate for the lower salaries they receive carrying out research and teaching in universities than they would get if they chose to use their highly-specialised knowledge and skills elsewhere."

Hutton report: The 27 recommendations

That sense of anger was shared across the public services with health workers and union leaders joining in the criticism.

"Public sector workers are already suffering a wage freeze, job losses and high inflation," said TUC general secretary Brendan Barber.

"They are now desperately worried that they will no longer be able to afford their pension contributions, and will have to opt-out."

Jon Skewes, director of employment relations at the Royal College of Midwives (RCM) said: "[Our] members will be appalled by this government's attack on their hard-earned pensions.

"On top of pay freezes, cuts to services and threats to the NHS itself, this will be seen as slap in the face for hard-pressed midwives and maternity support workers. They will react with anger and dismay and many may vote with their feet and leave the NHS."

The Hutton review also proposes linking normal pension age in most public service pension schemes to the state pension age and introducing a normal pension age of 60 for those members of the uniformed services - armed forces, police and firefighters - who currently have it pegged at less than 60.

The move would see most public sector workers work far longer, with the state pension age hitting 66 for men and women by April 2020.

It would also set a 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.

In an initial report Lord Hutton specifically rejected the accusation that public sector pensions were 'gold plated', stressing that average payments amount to a modest £7,800 a year.

But analysts are worried that with contributions staying level, payments on public sector pensions continue to rise.

With pension payments being tagged to the consumer price index (CPI) rather than the retail price index (RPI), which is usually higher, the cost of public sector pensions is already set to drop by 25%.

The pension age is already at 65 for most new recruits, while job losses and pay freezes across the public sector will also serve to hammer down the cost to the taxpayer.

The government is under no obligation to accept the recommendations.

Lord Hutton, work and pensions secretary under Labour, stepped down as an MP at the last election.

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