"The Hutton report provides a reality check for public sector workers who have not perhaps understood the true value of providing their pension benefits. Lord Hutton states that final salary pension schemes are inherently unfair. The public sector is now the last place where final salary schemes are held up as not just the Holy Grail, but also an absolute right. Final salary schemes benefit high flyers disproportionately relative to the workforce in general. Moving to a career average will be more affordable for the taxpayer and fairer to career public sector workers on modest incomes.
The value of public sector pensions is worth around 30% of pay, but contributions by public sector workers do not reflect the value of benefits that they actually receive. In fact the cost of public sector pensions has ballooned by a third over last decade to well over £30 billion a year.
Lord Hutton states that the average public sector pension is £7,800 per year. To buy that amount you would need a pension pot worth somewhere in the region of £300,000. This is in stark contrast to private sector pension pots where the average pot is worth under £30,000, demonstrating the very real disparity between private and public sector pensions.
The report states that public sector pension schemes have not kept pace with demographic realities and he says the status quo is not tenable because the burden of risks and costs is unfair to taxpayers. The report concludes that contribution rates will have to increase to help meet the rise in pension costs coming in the next few years. Every 1% increase in contributions from public sector workers could raise £1 billion. The report suggests the age at which public service workers can retire needs to more closely match life expectancy and retirement ages in the private sector.
Of course, when making changes we must not lose sight of the wonderful job many public sector workers perform - but as lord Hutton points out we can't go on like this. There needs to be fair way to mitigate the cost and risk to taxpayers of our very generous public sector pensions.
We understand that public sector workers may not be happy, but we hope they will recognise that change is needed.
Changes to public sector pensions were supported by 83% of the 14,178 respondents to a Saga Populus Poll carried out in the run up to the General Election.”
For more information please contact the Saga Press Office on 01303 771529.