Strictly embargoed until
08:00 Thursday 10 March 2011 - Lord Hutton publishes his final
report on the future of public service pensions
Issued by the News
Distribution Service on behalf of the Independent Public Service
Pensions Commission.
Lord Hutton of Furness today sets out his 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 this 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."
The report is available from the Independent Public Services
Pension Commission website at www.hm-treasury.gov.uk/pensionscommission.
Notes for editors
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) Further details on the Commission's proposed Career
Average Revalued Earnings (CARE) pension scheme can be found on
the Commission's website at www.hm-treasury.gov.uk/pensionscommission.
3) 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 at www.hm-treasury.gov.uk/pensionscommission.
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.
6) All media enquiries should be directed to Paul Mathews in the
Independent Public Service Pensions Commission press office on
07823 536 581.
Contacts:
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Phone: For enquiries please contact the issuing dept
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