The Centre for Policy Studies is urging the Government to go beyond Lord Hutton’s controversial public sector pension reform recommendations, claiming that the proposals are “not sustainable”.
Hutton’s report, published in March, proposed a range of changes to public sector pensions schemes designed to make them “sustainable and affordable”, including switching from final-salary to career-average provision.
Centre for Policy Studies research fellow Michael Johnson says a future Government will be forced to revisit public service pension reform unless the coalition puts in place long-term plans to introduce a “pure” defined-contribution framework.
He says: “Full implementation of Lord Hutton’s proposals, let alone anything weaker, would not fulfil the most fundamental of Lord Hutton’s own criteria. The new arrangements would not be sustainable from both affordability and fairness perspectives.
“Cutting the cost of public sector pensions by 25 per cent would save taxpayers billions of pounds every year, stretching into the future. The present value of such an annuity saving would be over £100bn in today’s money.”
The warning follows a report from Johnson in February which urged the Government to automatically enrol all public sector workers into Nest as part of a radical shift towards pure DC provision.
However, Hutton rejected the proposal, saying: “I decided not to recommend DC for a number of reasons, not least that ring-fencing the contributions would leave a significant black hole in public finances.”