Hutton: Not a race for the bottom
John Hutton outlines his commission’s initial findings on public sector pension reform:
“The current public service pension system has been unable to respond flexibly to changes in life expectancy over the past few decades – someone retiring now can expect to spend 40% of their adult life in retirement.
“This has driven up costs – by a third in the past decade – and these extra costs have fallen almost entirely to taxpayers. The final salary link in public service pensions is inherently unfair and can lead to high flyers getting almost twice as much back in pensions than those on more modest earnings for the same amount of pension contributions.
“It also acts as a barrier to free movement of employees from the public to private sector. The case for reform is clear.
“But it is wrong to say that public service pensions are gold-plated. The average pension paid to pensioner members is about £7,800 a year. About half of pensioners receive less than £5,600 a year, and 90% of pensioners receive less than £17,000 a year. Although these figures are partly accounted for by part-time or part-career working, these pensions provide a modest – not an excessive – level of retirement income.
“I also reject the argument that the downward drift of pensions in the private sector is justification that pensions in the public sector must follow the same course. I have rejected a race for the bottom.
“The Commission feels that if the Government wishes to make short-term savings, then raising contribution rates would be the most effective way. But in doing so, they should have regard to protecting the low paid and should not introduce contribution rates for the armed forces at this time.”
