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PPI: Govt reforms will cut public sector pensions by a third

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The Government’s controversial public sector pension reforms will reduce the average value of pension benefits for members by more than a third, according to research from an independent think-tank.

In the 2011 Budget, Chancellor George Osborne confirmed the coalition would press ahead with the public sector pension reform ideas proposed by Lord John Hutton’s independent commission.

These include linking members’ pensions to their average career salary rather than their final salary, increasing the normal pension age in line with the state pension age and raising member contributions.

The Pensions Policy Institute says the combined reforms will reduce the average value of a member’s pension benefit from 23 per cent of salary to 15 per cent of salary.

PPI director Niki Cleal says: “The PPI’s analysis suggests that the combined impact of the coalition Government’s proposed reforms is to reduce the average value of the pension benefit for all members of the NHS, Teachers, Local Government and Civil Service pension schemes from 23 per cent of a member’s salary before the coalition Government’s reforms, to 15 per cent of a member’s salary after the coalition Government’s reforms, a reduction in the average value of the pension benefit for members of these four schemes of more than a third.

“Nevertheless, even after the coalition’s proposed reforms the benefit offered by all four of the largest public service pension schemes remains more valuable, on average, than the pension benefit offered by defined contribution schemes that are now most commonly offered to employees in the private sector, into which employers typically contribute around 7 per cent of a DC scheme member’s salary.”

PPI research director Chris Curry says the reforms will reduce net Government expenditure on unfunded public service schemes from around 1.1 per cent of GDP by 2065 under the current system to around 0.8 per cent of GDP in the reformed system.

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