The Hutton report has called for public sector pensions to switch from final-salary to career-average before the end of this Parliament.
In the final report of the Independent Public Service Pensions Commission, published last week, former Labour minister Lord Hutton sets out detailed structural changes designed to make public sector schemes “sustainable and affordable”.
The package includes linking the normal pension age in most public sector schemes to the state pension age, setting a “clear cost ceiling” for public provision to limit taxpayers’ exposure to employees’ pensions and introducing stronger, independent governance regimes across public service pensions.
The report says the pension age for uniformed services employees should increase to 60 from 55 or lower in some cases.
Hutton says: “It is not a question of whether we need reform, it is a question of what reforms we need to ensure the sustainability of good quality public service pension schemes. This is reform for the long term, not in response to fiscal pressures facing the country but in response to the pressures on these schemes that have built up over decades.”
The report was generally welcomed by business and the pension industry but unions warn the changes could lead to strikes.
Affluent Financial Planning managing director Carl Melvin says: “The unions are living in Wonderland, they just do not get the reality of how expensive these pensions are.
“Even after these adjustments are made, public sector workers are still going to get a cracking pension relative to people in the private sector.”
Hutton rejected the opportunity to make recommendations on accrual rates or contributions, insisting decisions on fund- ing should be left to ministers.
The Treasury is in discussions with the TUC over how a 3 per cent increase in public sector pension contributions will be phased in from 2012.
The commission says accrued rights should be protected, so the final-salary link for past service for current members would be maintained. It proposes an overhaul of the legal framework for public sector pensions to make it simpler.