Public sector pensions remain amazingly generous

Thursday 10 March 2011

Public sector pensions remain amazingly generous

  • Public workers seem unaware of just how generous they are

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.

1. Public sector workers will still retain really generous pensions.

2. Even a £4000 a year public sector pension is worth over £100,000 and most private sector workers, especially those on low pay, could never hope to save that sum of money during their working lives. Public sector workers pay relatively little to achieve this huge benefit.

3. Pay in the public sector is no longer lower than in the private sector, so workers' pensions are no longer reflecting lower pay as was the case in the past.

4. The new proposals will be fairer for women and low paid workers, because they benefit most from a career average scheme rather than final salary.

Good points of Hutton's recommendations

An independent oversight of the costs of public sector pensions to protect future taxpayers and help provide transparency - these changes are long overdue.

A proper cost cap on employer (ie. taxpayer contributions) - again this is essential if we are to make pensions sustainable because unexpected future changes need to be accommodated more flexibly than current systems allow.

Linking pension age to state pension age is very welcome because it reduces the unfairness between public and private sector workers - and I would expect private sector pension schemes will look to follow this example too.

The new proposals will share the cost more fairly across generations and ensure workers are paying more if the costs of their pensions is rising.

Why public sector pensions remain really generous even after the Hutton recommendations

All workers in the current scheme will have their accrued pension benefits linked to their FINAL salary when they retire, not career average and not their actual salary when the scheme changes, which is far more generous to them because they will keep the final salary link even for the future. The new career average accruals will only start from when the new scheme starts.

Anyone close to retirement or in their 50s will be pretty much unaffected

Public sector pensions will still be 100% inflation linked (even if it is to a slightly lower measure of inflation, the protection is still vastly better than in the private sector )

Anyone who has left the public sector will still have their pension revalued each year by average earnings (not prices) up to their retirement, so their pension will be higher than for equivalent private sector workers


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