Public sector pensions

a pound being squeezedPublic sector pensions:
affordable and sustainable

Most public service pension schemes underwent significant reform in the period 2007-08. These reforms generally raised the pension age to 65 in schemes for new entrants. In the civil service, the scheme for new entrants also introduced a career average rather than final salary scheme; while future increases in costs due to factors such as improved longevity will be shared between taxpayers and scheme members through ‘cap and share' arrangements.

The Conservative and Liberal Democrat parties opposed these reforms because in their view they did not go far enough. Senior politicians in both parties attacked public sector pension provision as ‘gold-plated', ‘unaffordable, ‘unfair' and ‘unsustainable'.

Shortly after the coalition government was formed, the Chancellor, George Osborne, appointed John Hutton to review public sector pension arrangements. Hutton's terms of reference are available from the Treasury website. Osborne tasked the Independent Public Service Pension Commission with making recommendations on pension arrangements that would be both sustainable and affordable. The Commission was also asked to consider the case for making short-term savings from public sector schemes within the terms of the Comprehensive Spending Review.

Prospect's response to the Commission's initial call for evidence argued that the schemes reformed by the last government were sustainable and affordable, and that the ‘cap and share' agreements initiated in 2007-08 ensured they would remain so in future.

Hutton's interim report was published in October 2010. Its opening chapters make some helpful comments on the background to public sector pension provision. They reject the description of these schemes as ‘gold-plated' and any move to defined contribution schemes across the public sector.

Hutton pointed out that the only way to make savings on public sector pensions within the terms of the CSR was to increase member contribution rates, but that this was for the Chancellor to decide. On 20 October Osborne responded by announcing that member contribution rates in public sector schemes would increase on average by 3 per cent as from April 2012.

The interim report also pointed towards other areas for potential longer-term reform - among them a normal pension age of 60 where that had been retained, and final salary scheme design in general. The report indicated that Hutton would recommend moving away from these features.

A further call for evidence was issued after the Commission published its interim report. This asked for views around:

• design of public sector pension schemes
• risk sharing arrangements
• adequacy of income in retirement
• employee understanding of pensions
• plurality of public service provision
• administration costs
• transition issues

Prospect's response reiterated the union's stance that public sector pension provision was already on an affordable and sustainable footing. This argument was strengthened by projections published in the Commission's own interim report. Prospect argued strongly that unilateral changes to pension provision, such as the move to index pensions in line with the Consumer Prices Index, and the proposed increase in member contributions of 3 per cent, undermined confidence in public service pension provision and imposed a disproportionate and unfair burden on members of these schemes.

The Commission's final report will be published before the Budget. The issues it will raise as well as other announcements expected on public sector pensions will present major challenges to Prospect members and require a robust response.




Prospect is calling on members to write to their MP to protest the government's decision to impose steep increases in their pension scheme contributions. While negotiations with unions on pension reform are still under way, the Treasury last week announced plans to raise contributions by an average 3.2 per cent in three stages, starting next April.

The 2012 increase is intended to raise £180m a year from civil servants. It has been condemned by Prospect as unjustified and for pre-empting the outcome of the talks.

A draft letter and some tips on writing to your MP are available here.