Michael Johnson: Public sector pension reforms "not sustainable"
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The Government is under pressure to go beyond Lord John Hutton’s controversial public sector pension reform recommendations after an influential think-tank claimed the proposals are “not sustainable”.
Hutton’s report, published in March, proposed a raft of changes to public sector pensions schemes designed to make them “sustainable and affordable”, including switching from final salary to career average provision. The reforms have met fierce opposition from trade unions.
However, Centre for Policy Studies research fellow Michael Johnson (pictured) says a future Government will be forced to revisit public service pension reform unless the Coalition puts in place long-term plans to introduce a “pure” defined contribution framework.
He says: “Full implementation of Lord Hutton’s proposals, let alone anything weaker, would not fulfil the most fundamental of Lord Hutton’s own criteria. The new arrangements would not be sustainable, from both affordability and fairness perspectives.
“Cutting the cost of public sector pensions by 25 per cent would save taxpayers billions of pounds every year, stretching into the future. The present value of such an annuity saving would be over £100bn in today’s money.”
The warning follows a report from Johnson in February urging the Government to automatically enrol all public sector workers into Nest as part of a radical shift towards pure DC provision.
The report, titled ‘Self-sufficiency is the key: Addressing the public sector pensions challenge”, said moving from final salary to career average defined benefit provision should only be viewed as an “interim step”.
However Hutton rejected the proposal due to concerns it would create a “black hole” in Government finances.
He said: “I decided not to recommend DC for a number of reasons, not least that ring-fencing the contributions would leave a significant black hole in public finances and I do not think that would be a sensible thing to do.”
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Readers' comments (3)
Patrick Schan | 9 Sep 2011 10:12 am
New employees should get a DC scheme. Existing employees should be left with the current benefits. Nobody can complain then about being misled.
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Mark Craven | 10 Sep 2011 7:11 pm
Does Michael Johnson not realise that the value of public sector pensions has already been cut by 25% with increases now being in line with CPI instead of RPI. This is before any of Hutton's recommendations are put in place.
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Robert Purse | 13 Sep 2011 10:21 am
In the short-term, I think the biggest problem is the retention of the link to final pensionable salary. The Local Government Group has already expressed concerns about this. Lord Hutton has recommended 'Average Earnings' as the basis for revaluation of accrued rights. CPI is for pensions in payment.
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