When George Osborne announced that government departments would have to make 25% cuts across the board, the media reported that there were sharp intakes of breath in the Houses of Parliament. This is not surprising – making 25% savings anywhere is a tall order.
But when the Public Sector Pensions Commission estimated that public sector pensions need to make savings of 20% to be sustainable, there was uproar from the unions. A deal, they claimed, is a deal, which the government does not have the right to renege on.
The Public Sector Pensions Commission does not have one particular “answer” to the public sector pension problem, where generations of workers have been promised a level of retirement income that is now unsustainable. Instead, the Commission has recommended a “menu” of changes. Or, as the unions may interpret it, attack from every side.
Just over half of public sector workers can retire at 60 – compared to a quarter of private sector workers with a comparable pension scheme. On the other hand, nearly 7 out of 10 workers in the private sector must wait until the state retirement age of 65 to draw their private pension. Raising the age at which public sector workers can draw their pensions not only extends the time during which they would be making contributions, but it also reduces the length of time after retirement for which a pension is actually required.
There is much discussion of fat cats in the public sector, but the unions always rebut these claims with tales of how little the lower paid workers actually receive. Accordingly, in an attempt to keep both sides happy, the Public Sector Pensions Commission has floated the idea of capping the level of salaries that are pensionable. Accordingly, those with lower paid jobs would not be affected, but those with the so called “fat cat” pay packets would not be able to accrue eye watering pensions at the public expense.
Finally, the Commission has introduced the possibility of a “hybrid” between defined contribution and defined benefit schemes. Presumably, the employer would guarantee an income of a certain level, with the “balance” to be on the basis of the performance of the investment.
However, despite all of these interesting ideas flying around, public sector scheme members do not yet know their fate, as Hutton’s commission have not yet reported their findings.
