Public sector: Pensions cut and retirement age raised

10th March 2011

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 to the viability of these schemes going forward is rapidly rising life expectancy.

The report says reformed pension schemes should be introduced by the end of this Parliament, in 2015, while allowing a longer transition for groups such as the Armed Forces and police.

On the Daily Mail comment boards, public sector workers were enraged by the proposed reforms.

Woebegone of Wolverhampton said: "Just leaving my council flat to go to my public sector job. Can't afford to rent privately, can't afford to buy, can't afford much at all really. At least when I retire I'll get a decent pension. What? Oh. Same old struggle for the rest of my life, then. No chance anyway of retiring at 60, no chance of retiring at 65. I'll be frightened to retire. Before anyone says join the rest of us then, we should ALL get decent pensions. Setting private and public sector workers against each other is going to make it easier to rob all of us. Don't you get it?! 

Nicky of Kent asked: "Is this going to apply to MPs and are they going to lose their golden goodbyes? WATCH THIS SPACE?

Other readers were in favour of the reforms.

Peter of Ellesmere said: "The private sector creates the wealth that pays the public sector so when public sector final pension schemes are abolished perhaps staff should reflect on the fact that private sector final salarly schemes have already gone. Where do these people think the money is coming from?"

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