Final salary pension schemes scrapped by 2015?

Posted on March 11th, 2011 | Categories - Pensions

A report on public sector pensions may result in changes being made to the current system to make it more affordable.

Working for longer to generate a larger pension may become the norm if final salary schemes are abolished.

Public sector employees may have to work longer for lower pensions, if recommendations advised in a new report are accepted by the government.

An independent review led by Lord Hutton outlined that public sector pensions should be related to average salaries over a career instead of the final salary at the end of a person’s working life. This would make schemes “sustainable and affordable in the future”.

The report, covering pensions schemes for civil servants, the NHS, the armed forces, local government staff, the police, teachers and the fire service, highlighted that pensions should be related to average salaries by 2015.

However, if put into practice, the recommendations would result in lower pay-outs unless workers opt to stay in employment for longer to generate a larger pension pot. Lord Hutton said: “These proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs”.

He added: “Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final-salary schemes”.

NAPF’s chief executive Joanne Segars said “Lord Hutton’s findings strike the right balance between fairness and cost, and have avoided a race to the bottom”.

However, the report has drawn criticism from trade unions. General secretary of the Unison union Dave Prentis said: “This will be just one more attack on innocent public sector workers who are being expected to pay the price of the deficit, while the bankers who caused it continue to enjoy bumper pay and bonuses”.

He continued: “On top of a pay freeze, and the threat of redundancy, they now face a pensions raid. This brings the threat of industrial action closer”.