Public sector employees to work longer for smaller pensions

Published by Rebecca Rutt on 10 March 2011.
Last updated on 15 March 2011

Pensions wordsearch

Public sector employees may soon have to work for longer and receive smaller pensions, Lord Hutton revealed today. 

Lord Hutton's independent review suggests that final salary pension schemes – based on the final year of salary - should be scrapped for public sector workers.

Instead, the review says by 2015 public sector pensions should be related to average earnings over a career, making them less generous.

In addition, it also recommends that the public sector pension age – which can start from 60 - should be linked to the state pension age, which is due to rise to 66 by 2020 for both men and women.

The only exception to this rule would be for the uniformed services (armed forces, police and fire fighters) who have always had a lower retirement age because of the nature of their jobs. They will now not be able to retire before 60.

The proposals

Lord Hutton began the public sector pension review in October 2010 in a bid to find a way to save money and make the system more sustainable for future generations.

The proposed changes, if implemented, will come into force in 2015. Pensions already accrued on final salary schemes at this point will be protected. After this everyone previously on a final salary scheme will have to get a new pension. This amount is worked out by taking an average of your salary at this point and the time when you retire.

The biggest losers will be employees who start on a low salary and work their way up.

The proposals have been met with hostility from unions that have threatened industrial action.

Dave Prentis, general secretary at Unison, calls today's report a 'pensions raid' and says this is one more attack on innocent public sector workers who are expected to pay the price of the deficit, while the bankers who caused it continue to enjoy bumper pay and bonuses.

But others say the report is a positive move to making public sector pensions more affordable and sustainable in the long run.

John Cridland, director general of the CBI, says: "Public sector employees are going to have to contribute more to get a good quality pension when they retire. Greater life expectancy is something to celebrate, but someone has got to foot the bill.

"Currently the gap between people's contributions and the benefits they are promised by the Government amounts to £10 billion each year."

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