Former Labour Work and Pensions Secretary Lord John Hutton admits the party “ducked” the issue of public sector pensions reform during its time in office.
Hutton led a review the independent public service pension review which proposed radical reforms to public sector pensions earlier this year. His recommendations included replacing final-salary pensions with pensions based on career-average earnings and bringing most workers’ pension ages into line with the state pension age.
Speaking at the NAPF annual conference last week, Hutton said: “Labour did not go far enough in reforming public sector pensions and I say that with a great deal of regret.
“I give credit to ministers for tackling the public sector pension issue because we ducked it and they have not.”
Turning his attention to the future of defined-contribution provision in the private sector, Hutton raised concerns about the use of “target-date” default investment funds.
Under a target-date approach, an investor’s asset mix is adjusted according to his or her retirement date.
The Government-backed Nest scheme will offer 52 target-date funds when the scheme officially launches in October next year.
Hutton said: “Nest and automatic enrolment will thrust a spotlight on to the economics of defined-contribution schemes.
“In the UK, we will have to address the issue of successful investing. In DC, this is a major issue because, on average, DC schemes earn lower returns than DB schemes. In my view, this is at least partly due to the structure of default funds.
“I am not convinced target-date funds are the right way forward. It might reduce volatility but there is no emphasis on trying to achieve a given level of retirement income.”