TUC Summary and response to Hutton’s Interim Report, the final report is due in March 2011.

Key points from the report:

-the report rejects the charge that public service pensions are “gold plated” and argues against a levelling down to private sector rates

-it says that there is “a clear rationale” for making short-term savings through contribution rate increases, but leaves the decision to Government, with a warning that low-paid workers should be protected, increases should be staged and implemented in a way that minimises opt out rates

-the report says that the combination of the change from RPI to CPI for uprating pensions and the recent reforms mean that the value to current members is 25 per cent less than the pre-reform schemes with RPI indexation

-Concrete recommendations are generally left for the final report but a number of areas for further work are signalled:

  • the report says that defined contribution is not a suitable basis for public service schemes
  • it also signals that the Commission will be considering reforms that move away from final salary, including career average, hybrid and notional DC
  • there are likely to be recommendations on changes to Normal Pension Ages in the final report
  • the interim report says that the current discount rate is “at the high end of what is appropriate” and asks the Government to review the rate in time for the final report
  • the report says that Fair Deal is a barrier to non-public service providers, but appears to advise against extending access to public service schemes

Key points in response:

-At a time of high inflation (RPI is currently 4.7 per cent), when public sector workers are facing a pay freeze, job cuts and increased workloads due to the cuts, an increase in contribution rates is a cut in take-home pay

-The cost of providing public service pensions as a proportion of GDP is the most appropriate measure and was used by the National Audit Office in their report earlier this year, and referred to in the Hutton report. Using this measure the cost is projected to fall from 1.9 per cent of GDP in 2010-11 to 1.4 per cent of GDP by 2060

-the impact of the change to CPI is significant, as the new figures in the report show (an average 15 per cent reduction in the value of benefits, rising to 25 per cent when combined with the effect of recent reforms)

-2 out of 3 private sector workers have no employer backed pension. The highest-paid directors of ftse100 companies can expect pensions averaging almost £300,000 per year, according to TUC research. They are often in different schemes from their employees (if indeed there is a scheme for employees), with superior terms. In the public service schemes bosses and their employees are in the same schemes.

-the current discount rate is reasonable because of the strength of the government’s covenant – see here for an explanation. It is also used to make judgements about other long-term government decisions such as capital investment.

The TUC issued the statement below in response to the report:

Commenting on the Hutton Review of Public Service Pensions published today (Thursday), TUC General Secretary Brendan Barber said:

'Public servants will be angered by the review's call for them to pay more for less generous pensions. Public sector workers are already facing job cuts, a pay freeze and increased workloads as they are expected to do more with less. They have already had the value of their pensions cut by the switch to CPI indexing, which will slice a little off their pension every year. At a time when inflation is breaking targets and pay is already frozen, asking people to pay immediate increased contributions adds up to a significant pay cut. But the precise details of what will happen are as yet far from clear, and on important issues John Hutton has firmly pushed the ball back into the Government's court. These should be negotiated with unions rather than imposed from above.

'Yet many of the critics of public sector pensions - including ministers - have been rebuffed today. Public sector pensions are not gold-plated, and the report says that pensions should be linked to salary, that change should be introduced in ways that do not deter pension saving and that there should be protection for the low paid. This will stop a race to the bottom. The review is also a challenge to Government to do more in the private sector. If ministers accept these proposals, the two in three private sector workers who get no employer pension support have every right to ask why they can't have decent pensions too.'

A TUC blog post gives some more detail:

And a preview post from yesterday sets out some of the arguments

The Commission papers are here: