Hutton's blueprint for reform

Senior and middle management could emerge as the biggest losers in Lord Hutton's plans for an overhaul of public sector pensions outlined last week, writes Dermott Calpin Last week on pensions, then this week on pay – two major reports foreshadow Chancellor George Osborne's Budget on 23 March and the TUC's ‘March for the Alternative' on 26 March. Though billed as a day of action for ‘jobs, growth and justice' rather than a day of rage, the march and rally in London's Hyde Park is designed to highlight opposition to cuts in public services and should provide a significant barometer on the strength of feeling against current Government policies. No surprise then that Unison and the GMB were both highly critical of the report from the former Labour minister Lord Hutton on the future of public service pensions which proposes changing existing final salary schemes with pensions based on career average earnings and a fairly stark overall message that people should expect to work longer and pay more for their pensions. For Unison's general secretary Dave Prentis, the report is just ‘one more attack on innocent public sector workers' and he warned: ‘On top of a pay freeze and the threat of redundancy they now face a pensions raid. This brings the threat of industrial action closer.' While Brian Strutton, national secretary for public services at GMB, concluded: ‘Many of his conclusions are questionable and will infuriate public sector workers. It's not cogent enough to be a blueprint for reform but it might well light the blue touch paper for industrial action.' Lord Hutton himself has insisted: ‘The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform.' But he has also stressed the need for broad long term agreement between employees and unions, adding: ‘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.' 'The current model of public service pension provision is clearly not tenable in the long term.' (Pic: Shutterstock) The final report of the Independent Public Services Pension Commission, chaired by Lord Hutton, follows a nine-month review designed to address the thorny issue of how to make public service pensions more sustainable and affordable in the longer term, while still providing an adequate level of retirement income. Though it does not say there should be a single public sector pension, it does suggest that over time there should be a shift towards a ‘common framework' in schemes covering local government, teachers, civil servants and uniformed staff such as firefighters and police – with changes being introduced before the end of this Parliament by 2015. Presenting the report Lord Hutton emphasised: ‘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. ‘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.' Baroness Margaret Eaton, chairman of the Local Government Association, has endorsed the shift toward basing pensions on career average earnings and said: ‘It addresses the inherent inequalities of the current final salary arrangements which favour those who progress through the salary scales and, in particular, those who get a promotion just before retirement.' Lord Hutton's report proposes changing existing final salary schemes. However she also called for special recognition of the Local Government Pension Scheme (LGPS) – which is funded and paid for through investment in business, property and the stock market – and said: ‘We will consider closely the points Lord Hutton makes about the administration of the LGPS. As well as being fully funded locally, the LGPS is governed and administered by locally elected members representing the interests of council taxpayers. The LGPS is fully transparent and more accountable than any other public sector pension scheme.' Andrew Crawley, head of pensions at KPMG, forecasts the reforms are likely to have the biggest impact on middle and senior management and he said: ‘The challenge across the public sector is to keep the engine room running at full speed through the wider costs of public sector reforms. ‘The Government will want lower earners to be protected and it is inevitable that people closer to retirement will be less affected as implementation cannot possibly happen straight away. But what about those who will be most affected? These are likely to be the middle to senior management coming up through the ranks.' Both employers and unions share concerns that the Chancellor George Osborne has already undermined some of the future room for manoeuvre by announcing £3.7bn increases in public sector pension employee contributions by 2014-15 in last October's spending review. It was this which prompted Unison's to describe the Hutton report as a ‘Trojan horse to raid the pensions of hard working public sector workers' and their GMB counterparts to warn that the financial balance of the LGPS could be decimated because of staff opting out to avoid higher level contributions. Mike Taylor, chief executive of one of the largest council schemes, the London Pension Fund Authority, said: ‘There remains a concern, however, that the Government's plans to raise the level of employees' pension contributions could lead to significant numbers opting out of public sector schemes, potentially scuppering Lord Hutton's plans before they have the chance to take effect.' However, he also said that overall: ‘Lord Hutton has produced a report which, if implemented, will go a long way towards ensuring public sector pensions remain fair and affordable for the taxpayer, but which continue to provide adequate retirement income for millions of Britons working in the public sector.' Bob Summers, chair of the pensions panel at the Chartered Institute of Public Finance and Accountancy, has warned of a ‘double whammy' facing public sector schemes with a loss of income from job losses and as opt outs increase. ‘Public sector schemes are already having to factor in reduced contributions from employees as a result of a loss of members through workforce reductions. Further reductions in income as a consequence of opt-outs prompted by unaffordable employee contribution rates will result in a pensions "double whammy" for the taxpayer – increased state funding now to make up for the lost employee contributions and increased state funding in the future to pay for state benefits to replace the lost pensions,' he said.

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WHITEHALL

Hutton's blueprint for reform

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