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Hutton Review: Public sector workers will have to work longer for lower pensions

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Millions of workers in the public sector will have to work for longer for lower pension funds, Lord Hutton has announced in his independent review of public sector pensions.

 

Hutton's independent review said public sector pensions should no longer be related to final salaries, but by 2015 they will be connected to average career earnings.

Hutton was commissioned to investigate pension schemes covering civil servants, the NHS, teachers, local government staff, the police, armed forces and the fire service.

The National Association of Pension Funds (NAPF), which has four million public sector pension holders among its members, commented on the findings of the Hutton report on public sector pensions. Its chief executive, joanne segars, said:"Lord Hutton's findings strike the right balance between fairness and cost, and have avoided a race to the bottom. "Public sector workers will still retire with a good pension, and it is important that they can bank what they've already built up. "Moving to a new career average scheme is a sensible approach that will help protect the lower paid. This could be a better deal than the current final salary arrangements for the lower paid and those whose earnings spike mid-career. "An increase in retirement helps manage costs and is unavoidable given that people are living longer. "Improved scrutiny and the proposed cost ceiling will help ensure taxpayers aren't signing a blank cheque. "It is an ambitious timetable to implement this by 2015, but it is important to crack on with these reforms."

But experts in the pensions department at pricewaterhouseCoopers, warned the reforms could have an impact on private sector employees as well. Steve Beet, public sector partner at PwC, said: "Reforms will need to happen without disrupting services to existing pensions in payment and against a backdrop of significant changes elsewhere in the public sector and severe pressure on resources. "It is essential activity starts now, as Government considers the Commission's recommendations, to plan for the work that will be needed and to secure the key skills and resources necessary for what will be a very challenging programme of change. The review's focus on implementation will be key to the successful delivery of any reforms to public service pensions."

Mark Packham, pension director at PwC, added: "The private sector will welcome the direction of travel but may still balk at the costs of protecting benefits. Much of the savings will emerge from measures already outlined on CPI inflation matching and higher member contributions. "Attention will now switch to the terms that have to be offered to transferring staff when public services are outsourced to private providers. Consultation on this has already started and terms may well change more quickly than public sector pensions themselves. "Looking more widely, employers with a culture that benchmarks against the public sector will find an influential reference point in the Commission's recommendations, especially the risk sharing ideas around linkage to state pension age. "A picture of the future of overall public sector remuneration is emerging which will become clearer still when Will Hutton reports on fair pay next week."