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MM Leader: Hutton right to reject “counsel of despair”

Lord Hutton’s interim report into public sector pensions presents a sensible and coherent argument for much needed reform while dispelling many of the myths over so-called “gold-plated” pensions.

The Labour peer will present his full report before next year’s Budget but last week set out his view that public sector employees should contribute more to their pensions, alongside a range of radical longer-term reforms.

Many public sector workers do not have the stereotypical bulging pension pot and the complexities of the issue mean there is not a hoard of money ready for a cash-strapped Government to plunder. Some public sector workers already pay in a significant percentage of salary into their pension. However, as the taxpayers’ public sector pension burden has increased significantly, it is reasonable to suggest that public sector staff should see a rise in contribution levels.

Over the longer term, there is an overwhelming case for fundamental reform of public sector pensions to ensure they are affordable and sustainable for the state and fair on the taxpayer and future generations.

As Hutton points out, the final-salary system offers disproportionately high benefits to higher-earners within the public sector and does not provide a fair deal either to the taxpayer or lowerpaid public sector workers.

The report will examine a number of different proposals which aim to share the risk between the state and the employee, including careeraverage schemes, notional or collective DC schemes and a number of hybrid models.

One of the most positive messages from the report is Hutton’s desire to ensure public sector pensions do not join the “race for the bottom” and that just because many private sector workers have poor pension provision, the public sector should not be dragged to a similar level.

Hutton is right to reject this “counsel of despair”. We should be looking to ensure that public sector workers receive a decent level of provision that many private sector workers can aspire to. The last thing we need is the widespread opt-out of public sector workers and even fewer people saving for their future.

In this context, the introduction of Nest should create a basement floor for private sector workers. It will be up to advisers and the rest of the industry to persuade people they need to save more.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. All pensions are funded, to a greater or lesser extent, by the taxpayer. In the case of public sector pensions this could be as much as 85%-90% whereas in the private sector it could be 50% depending on personal tax rates. A much fairer solution would be to do away with personal pensions altogether and replace them with a sensible old age pension for everyone. That way, everybody gets exactly the same benefit. People could then make their own provision for extra income over and above the state schem by using the various savings and investment vehicles.

  2. “dispelling many of the myths over so-called “gold-plated” pensions”. Hmmmm, not from what I’ve seen in many, many cases of phoney “redundancy” early retirement deals involving hugely enhanced pensions with not one but two lump sums on top. And the most senior people are often invited back after a few months on a “consultancy” basis, being paid even more for doing exactly the same job. Why isn’t Hutton talking about those kinds of tax-payer frauds?

    As for NEST, my views on that have been expressed already in many places ~ it’ll never fly.

    What’s really needed is genuine and radical simplification of the whole pensions quagmire. Whilst there seem to be few noises being made about it, all we’ve seen so far is the abolition of any requirement to buy an annuity by no later than age 75 (which Labour did four years ago) and now, a reduction to the annual input allowance to something in the region of £50K (depending on which source you credit). Big deal.

  3. It would be interesting to view the historical data with regard to how many public sector employees have retired early on “ill health grounds”.

    Top of the money tree will be policemen & women, firefighters and Local Authority Workers who have all “mugged” the taxpayer over many years and who now enjoy a very generous pension, and a substantial number have now miraculously recovered to be employed elsewhere.

    A career average scheme with a sensible earnings cap is a reasonable compromise going forward.

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