Public sector workers should pay higher contributions into their pensions schemes, according to Lord Hutton.
The Independent Public Service Pensions Commission interim report, published this morning, says three short-term options were considered for dealing with the sustainability of public sector pensions, of which higher payments was the most effective.
The other options were changing the benefits structure and contracting public service pensions schemes into the State Second Pension.
Hutton writes: “Any increases should be managed so as to protect the low paid and if possible, increases in contributions should be staged and need to be considered with a view to preventing a significant increase in opt out rates.”
The final report, due before next year’s Budget, will look at longer term reforms to public sector pensions including a career average alternative to final salary schemes and ensuring pension ages rise in line with longevity developments.
It will also examine the possibility of introducing collective defined contribution schemes similar to those used in Sweden and Holland or hybrid risk-sharing models that combine elements of DB and DC.
With public sector pay currently frozen, any increase in payments will result in a reduction in take home pay.
Trades Union Congress general secretary Brendan Barber said: “Public sector workers are already facing job cuts, a pay freeze and increased workloads as they are expected to do more with less.”
He said: “The report says that pensions should be linked to salary, that changes should be introduced in ways that do not deter saving and that there should be protection for the low paid. That will stop a race to the bottom.”
Hutton was asked by the Chancellor George Osborne to conduct an independent review into public sector pensions.
He writes: “Many of the current public service pension design features, including accrual rates, pension ages and the link to final salary, date back nearly 200 years.”
“It is my clear view that the figures in this report make it plain that the status quo is not tenable. I believe we need to adopt a more prudent approach to meeting the cost of public service pensions in order to strike a fairer balance not just between current taxpayers and public service employees but also betweencurrent and future generations.
“In the short term, however, I consider there is also a strong case for looking at some increase in pension contributions for public service employees, to better meet the real costs of providing these pensions, the value of which has risen in recent years with most of these extra costs falling to taxpayers.”