Centre for Policy Studies research fellow Michael Johnson has hit back after Lord John Hutton suggested his calls for public sector pension schemes to be fully funded are “ideological”.
Last week, the Independent Public Service Pensions Commission, chaired by Hutton, recommended public sector pensions switch from final-salary to career-average provision. Hutton resisted Johnson’s suggestion that public sector pensions should be fully funded.
In an interview with Money Marketing, Hutton said: “The argument about whether public sector pensions should be funded comes across as an ideological one. I am much more interested in efficiency and effective use of public resource and with the reforms I am proposing we can continue to provide really good pensions at an efficient level of cost.”
In a letter to Money Marketing, Johnson says a funded framework would enhance the transparency of the system, force policymakers to address intergenerational inequalities, help stimulate a savings culture and reduce the cost of pension provision.
He says: “Pay-as-you-go enables employers to not be held directly responsible, let alone accountable, for the accumulation of pension promises, which is a serious governance failure. With most schemes being unfunded, employers never have to contemplate, let alone execute, a deficit recovery plan.”
In a report submitted to Hutton’s commission in February, titled Self-sufficiency is the Key: Addressing the Public Sector Pensions Challenge, Johnson urged the Government to set out its intention to move to defined-contribution provision by 2020.
He suggested the Government could “seed” unfunded public sector schemes with tradable securities issued by the Treasury to make public sector pensions more transparent and make the amount the Government owes explicit. He also said public sector workers should be automatically enrolled into the national employment savings trust.