Pensions shake-up hits millions

Former Labour Cabinet minister Lord Hutton said workers, such as NHS staff, teachers and police, should no longer receive pensions that are based on their final salary but will be forced to accept “defined benefit” pensions based on their average pay over their whole career rather than their final salary.


Lord Hutton called for the normal age at which most public sector staff can start drawing their pension to be increased to be the same as the state pension age, while members of the armed forces, police and firefighters should not be able to retire before 60.

The Government was today warned that implementing radical changes to public sector pensions could “light the blue touch paper” for strikes by millions of workers as they plan to slash the £32billion-a-year cost of providing public-sector pensions.

Unions representing council workers, NHS staff, civil servants and other public sector employees reacted with fury to the report and warned of co-ordinated industrial action.

Brian Strutton, national officer of the GMB, said “Lord Hutton had a real chance to make sure low paid public sector workers have good quality, affordable pension schemes, but in failing to address the key issue of affordability to members, that chance has been wasted.

“Many of his conclusions are questionable and will infuriate public sector workers. It’s not cogent enough to be a blueprint for reform but it might well light the blue touch paper for industrial action.”

Senior officials – including more than 3,000 with pension pots worth more than £1million – could see their retirement incomes

shrink by thousands of pounds a year.

Almost all Britain’s six million public-sector workers, including teachers, nurses and librarians as well as civil servants and quangocrats, will be affected.

Jon Skewes of the Royal College of Midwives said members would be “appalled” by the Government’s “attack” on their pensions.

“On top of pay freezes, cuts to services and threats to the NHS itself, this will be seen as a slap in the face for hard-pressed midwives and maternity support workers.

"They will react with anger and dismay and many may vote with their feet and leave the NHS. This will only serve to exacerbate the current and critical shortage of midwives and have a negative effect on the care women and babies receive,” he warned.

The overhaul is expected to be in place by 2015 and goes far further than the increased pensions contributions proposed by Labour.

Independent pensions adviser Lord Hutton of Furness will put forward the proposals today in a report ordered by the Government.

He will say there is a “clear need for reform” because the current model of pension provision is “not tenable in the long term”.

Figures this week suggested a £3.2billion black hole in funding will more than double by 2015.

Lord Hutton, who spent nine months investigating the funding crisis, argued that career average pensions would benefit lower paid workers and said his aim was to make the system fairer and more sustainable.

Around 12 million public sector employees depended on pensions in retirement, but costs were increasing as people lived longer, he said.

“If we go on as we are, we are heading for the rocks,” he said. “The solution is not a race to the bottom, nor to hack away at public sector pensions.

“The biggest risk is the rapidly rising life expectancy.

“The private sector has had to adjust to tough new realities on pensions, and the public sector will have to do the same."

David Frost, director-general of the British Chambers of Commerce, said: “Public sector pensions have long faced problems of affordability, and these reforms designed to bring them into line with those in the private sector are essential.

“It is unsustainable for taxpayers to pay out billions to cover a spiralling and unfunded hole in public sector schemes.

Ros Altmann, a former government pensions adviser and now director-general of Saga, said: “Lord Hutton’s recommendations on public sector pensions have led to calls for industrial action by public sector unions, but the reality is that his proposals will still leave them with hugely generous pensions that most private sector workers could never hope to achieve.

“Lord Hutton has left most of the difficult decisions about pension funding to the Government and has made broad headline recommendations with details to be filled in by the Treasury in negotiation with the unions.

“Under his broad proposals, public sector pensions will remain much more generous than those in the private sector.”

Lord Hutton's report follows anger among private-sector workers over a “pensions apartheid” as they see final salary schemes close and retirement incomes fall while public-sector pensions were unaffected.

The vast majority of state employees will now see their final-salary pensions schemes closed and replaced with less generous defined-benefit pensions, although they will not lose pension rights already accrued.

Retirement age will also be brought into line with the state pension age, a hike from 60 to 68.

Only members of the armed forces, police and firefighters will retain the right to retire earlier.

Meanwhile, a strict limit will be slapped on the size of pension pots for the most senior civil servants after Lord Hutton’s interim report indicated that 2,960 of them had pots worth more than £1.1million, guaranteeing them retirement incomes over £67,000 a year.

A private-sector employee on an average income would take 600 years to build up equivalent pension rights.