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UK's Hutton Report strikes 'balanced deal' over public sector pensions

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  • UK's Hutton Report strikes 'balanced deal' over public sector pensions

UK - A UK government report on public-sector pensions has proposed a shift to career-average schemes by 2015.

Although the Hutton Report stops short of proposing defined benefit schemes be scrapped - a move it rejected in an interim report last year - it does recommend a switch away from the final-salary schemes it claims are "fundamentally unfair" to lower paid workers.

In the meantime, calculating accruals for current scheme members according to final salary "will ensure fair treatment", according to the widely trailed report.

Mike Taylor, chief executive of LPFA, the body that manages the Local Government Pension Scheme, told IPE: "This protection is as generous as we could have expected it to be, though it will make the administration harder. They've gone further than we would have expected."

He said the report was "pretty much as expected, and we're quite happy about that."
Hutton also wants public sector retirement brought in line with the state retirement age.

For the armed forces and police - which will have longer to implement the proposed reforms - it marks a significant increase.

Its author claims the report's recommendations, which are expected to be implemented in full, will keep future costs under control by capping public contributions to public-sector workers' pensions.

Around 85% of public sector employees have an employer-sponsored pension, compared with 35% in the private sector.

The report also urges more independent oversight and strong governance of public sector pensions schemes.

Yet it also urged greater member involvement in consultations over scheme set-up and operations.

Punter Southall principal John Prior said: "Trade unions already represent employees on pension scheme boards. It won't make much difference."

Employers' organisation the Confederation of British industry (CBI) welcomed proposals it said would level the playing field for private sector contractors, but are effectively penalised in tenders by higher pension costs.

CBI head of pensions Jim Bligh said the concern now was to ensure the government implemented the recommendations in full.

"The report has come up with a set of proposals, but it hasn't put together a package it can sell to employers and unions to make it work," he said. "You can't ignore the fact this is a sensitive issue."

Nigel Keogh, a pension specialist at public finance body CIPFA, said: "The report has presented the government with an overall direction of travel, but the detail is there to be worked out."

He added: "It's incredibly difficult to come up with a one-size-fits-all scheme that works for everyone, from hospital porters to senior consultants. The flexibility is welcome because it allows the government to tailor its response."

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