Tag Archives: john hutton

I’ve not yet had time to fully digest all 176 pages of John Hutton’s interim report on the future of public sector pensions, but here are some parts which have stood out so far and look to be the key issues for the future:

I have been struck both by the enormous complexity of the subject matter, as well as by the degree of misunderstandings and confusions that surround any debate about it. My report tries to dispel some of these myths. It is mistaken to talk about ‘gold-plated’ pensions as being the norm across the public sector. In the most part, the pensions that are paid out to public service employees when they retire are fairly modest by any standard, although in part these reflect part-career or part-time working. For some people these modest pensions now look over generous because of the changes that have taken place in the private sector over the last 30 years or so, where pensions have become generally much less valuable than they used to be. Fewer people in the private sector are also contributing to a pension. I hope these negative trends can be reversed and I fully support efforts to do so.

This downward drift in pension provision in the private sector does not however provide sufficient support or justification in my view for the argument that pensions in the public sector must therefore automatically follow the same course … I have therefore rejected a race to the bottom as the only answer…

Final salary schemes, which are the norm across much of the public sector, primarily reward high earners who progress rapidly through the salary scales…

All these past reforms , the current pay freeze and planned workforce reductions will reduce the future cost of pensions. The gross cost of paying unfunded public service pensions is expected to fall from 1.9 per cent of GDP in 2010-11 to 1.4 per cent of GDP by 2060 …

However, these measures will take many decades to fully affect the costs of pensions in payment, which are heavily influenced by existing pensioners, the vast majority of whom are still in pre-reform schemes. The Commission estimates that gross expenditure on unfunded public service pensions will remain close to current levels as a proportion of GDP over the next decade…

The increase in longevity also means that these pensions are now likely to be paid out for longer, increasing the overall costs. These extra costs, despite recent reforms, have not been equally split between employer and employees…

The most effective way to make short-term savings is to increase member contributions and there is also a clear rationale for doing so…

Evidence to the Commission has also made it clear that current pension structures, combined with the requirement to provide comparable pensions (‘Fair Deal’), are a barrier to non-public service providers, potentially reducing the efficiencies and innovation in public service delivery that could be achieved.

The lack of long term cost increases (as a proportion of GDP), the way the schemes particularly benefit those who end up in the best paid jobs and the view that decreasing private sector pension schemes is no reason for the public sector to follow suit all look towards a final report that may recommend many changes of detail but will not propose radical reductions in overall public sector pension provision.

Here is the report in full – and do post up a comment if you spot something significant somewhere in the details:

Independent Public Service Pensions Commission: Interim Report