Millions of public sector workers, including the police, teachers and nurses, will see their pension pots slashed in a series of far-reaching reforms unveiled by Lord Hutton. The Daily Mail reported the story as "public sector staff told: work for longer and get a smaller pension". It said public sector workers would have to work more than a decade longer for a less generous retirement package; early retirement would also become a thing of the past, with the normal age state workers can draw their pension increased to the same as the state pension age.
Citywire's Lorne Bourke reports that Hutton's main recommendation is that the final salary link for public sector pensions should be replaced with new schemes which calculate pensions on a 'career average.' This will mean cuts of up to 40% for higher earners, she writes. The reforms would not be retrospective however, meaning members accrued pension rights in the existing schemes up to the date of any change would be fully protected and the final salary link for past service for current members maintained.
The Treasury's own forecasts show that the cost of funding public sector pensions, £32 billion paid out to public sector pensioners in 2010-11, will rise from £4 billion to £10.3 billion by 2015-16 if there are no changes. In 2004-05 the shortfall was only £1.25 billion.
Bourke reports that 'career average' linking, which will replace the final salary link, will mean lower pensions for many. For example, the head teacher of a secondary school earning the typical salary of £86,000 a year is currently eligible for a maximum annual pension of £43,000. Under an average-salary scheme, that could drop to £31,000 a year.
The Guardian reports that the public sector unions were already planning co-ordinated strikes, in protest at the reforms.
Hutton told the BBC's Today programme:
"If we go on along the path we are, which is basically to deny that costs are rising, to deny that there is rising life expectancy, and just assume we can carry on, we are heading for the rocks and I don't want that to happen.
"The solution to this problem is not a race to the bottom, it's not to hack away at the value for public service pensions, it's to manage the risks and costs sensibly and I think the biggest risk by far…
