UK - Lord Hutton's interim report on UK public sector pension reform has generally been welcomed by the pensions industry, with commentators recognising the difficult balancing act between protecting employees' pension rights and ensuring the system is sustainable and affordable.

John Wright, head of public sector at consultant Hymans Robertson, said: "This process is a once in a generation opportunity for delivering lasting, impactful reforms, and it requires long-term vision to deliver this.

"Lord Hutton's proposals deliver an excellent foundation for that. Levelling down public sector pensions to the inadequate levels found in the private sector must be avoided, and this report makes it clear that is not the way forward."

Similarly, Joanne Segars, chief executive of the National Association of Pension Funds, said the commission had listened to warnings about not overburdening the lowly paid, adding: "Reforms should be focused on those who are set to gain the most out of the current system. The long-term solution to public sector pensions mustn't become a race to the bottom. All workers deserve a good workplace pension, whether private or public sector."

Chris Keates, general secretary of the NASUWT, the UK's largest teachers union, said: "This should put an end to the hysterical debate deliberately created by the coalition government to soften up the public for an attack on public sector pensions."

Mike Smedley, pensions partner at KPMG in the UK, praised the report for making the scale of the challenge clear, but said it also ruled out cutting benefits as far as the private sector, or moving to a defined contribution model.

"And while the public sector may end up with lower pensions," he said, "it appears they will still have more than the private sector in the form of a guaranteed level of benefits, relatively high pensions compared with the private sector and in terms of the scale of participation in pensions savings."

Michaela Berry, partner at Sacker & Partners, said Hutton's report was the public sector's Sword of Damocles.

"The first shot of the battle for hearts and minds has been fired, with Lord Hutton calling final salary benefits 'fundamentally unfair," she said. "We'll have to wait until his final report in spring to discover what he recommends - but reading between the lines, it looks like Career Average Revalued Earnings is the front-runner to replace final salary in the public sector."
 
Graeme Muir, partner at Barnett Waddingham, said the report's recommendations were largely anticipated.
 
"The key message is we need to retain decent pension provision for public service staff, but also must recognise changes are required to make the whole system fairer," he said.

Mercer welcomed the report, with Deborah Cooper, head of the consultancy's Regulatory Research Group, saying: "Making short-term savings by raising contribution rates is an easy win, and we welcome the Commission's statements that the low paid should be protected, and that contribution increases be staged to minimise employees opting out of pension provision."

The endorsement of the Association of Consulting Actuaries, however, was tempered with some disappointment.

Stuart Southall, chairman at the ACA, said: "This is a balanced and thoughtful report, although it is careful in 'passing the buck' to the government in deciding upon any short-term policy changes and, more disappointingly, on the future of the Fair Deal, which covers pensions in outsourcing arrangements."

Frank Eich, senior economist at Pension Corporation, said: "Perhaps Lord Hutton would like to focus on occupational pensions more generally after his second review. After all, what will be right in his view for the public sector should also be right for the private sector - how otherwise could it ever be perceived to be fair?"

The final report is expected in the spring next year.
 

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