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Categories:Pensions

Career-average plan wins support

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IFAs have welcomed Lord Hutton’s aim to fundamentally restructure public sector pensions to put them on a more sustainable footing.

Hutton’s Independent Public Service Pensions Commission interim report, published last week, laid out a number of options for reform that will be examined by the review which will be published before next year’s Budget.

The options include career-average defined-benefit schemes, notional defined-contribution schemes, collective DC schemes or a number of hybrid DB/DC schemes.

Re-Financial Planning director David Higgins says that he would favour a career-average scheme.

He says: “When you look at the public sector, traditionally, they were not paid as much as the private rate, because they got an extremely good pension.”

He says that over the last 10 years, public sector pay has equalled and in some cases exceeded the private sector.

He adds: “This is basic home economics, something has to give. Reducing the benefits to a career average seems to make sense.”

Bridgewater director Christopher Wicks says: “Among Hutton’s observations is that there is no evidence that public workers are paid less than private sector workers.

“Given the need to share the pain to cover the budget deficit, it is only fair that public sector workers, who do not, on average, appear to be less well paid than anyone else, should play their part.”

Radcliffe and Newlands chartered financial planner Mel Kenny says: “Moving to a career-average scheme addresses the first part of the problem while the Swedish model of factoring in life expectancy would complete the jigsaw.”

Wicks says the thrust of the report is that public sector pensions do not represent good value for money in their current configuration.

Pensions Policy Institute director Niki Cleal says: “A public sector pension is worth around 17 per cent of salary to a typical public sector worker. On a comparable basis, a typical defined-contribution private sector scheme is worth around 10 per cent of salary.”

Higgins warns that in changing the system, care needs to be taken not to bring all schemes down to the lowest common denominator which, he says, would be a disaster.

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