Public sector staff face losing final salary pension schemes

Craig Woodhouse12 April 2012

Public sector workers face radical changes to their pensions under proposals being unveiled this week.

A review by former Labour Cabinet minister Lord Hutton is expected to recommend an end to "gold-plated" final salary schemes. He is set to say that workers should instead receive payouts linked to average salary over their careers.

Millions of NHS workers, civil servants, teachers and others also face paying more into their schemes and working longer until they can draw their pensions. Unions warned of strike action if ministers accept the recommendations, describing them as "pensions robbery".

Lord Hutton was tasked with reviewing public sector pensions by Chancellor George Osborne, amid concerns about the growing gap between contributions and the amounts being paid out - which could hit £10 billion by 2015/16. The Government has already signalled that increased contributions are on the cards, but is looking at ways to protect the low paid. A response to Lord Hutton's package of reforms is expected later in the year.

A career-average scheme would bring an end to final salary arrangements described as "fundamentally unfair" because they disproportionately benefit high-fliers.

Under a career-average scheme, if a worker started on a salary of £20,000 and retired 40 years later on £60,000 after getting a £1,000 increase every year, they would receive a proportion of £40,000 each year after retiring.

Currently, they would get a proportion of £60,000. The maximum pension in most schemes is half of pay, but the length of service needed to achieve that varies.

Lord Hutton is also expected to say public sector staff should contribute an extra three per cent, and should not be able to receive their pensions in full until the age of 65 - in line with the state pension age - rather than 60, which applies to many at present.

Pensions expert Ros Altmann, director-general of Saga, said the package "makes sense" but described it as "only a dent".

TUC general secretary Brendan Barber said it would be "grossly unfair" to raise contributions at a time of job cuts and a pay freeze for workers. Other union bosses struck a more militant tone. Mark Serwotka, general secretary of public services union the PCS, said it was a "crude and unfair tax".

Bob Crow, leader of the RMT rail union, said it was a plan to make staff "work longer, pay more and get less". He added: "There is no question that this is the issue where coordinated strike action is on the cards as we fight to stop the Con-Dem pensions robbery."

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