Implementation of Hutton reforms unlikely to end pension woes: CPS

A CPS Report Published Today Said Hutton Report will Not Solve State Pension Problems

A CPS Report Published Today Said Hutton Report will Not Solve State Pension Problems

A report published by the Centre for Policy Studies today, said even the full implementation of the Lord Hutton report on public sector pension reforms is unlikely to create a long term and sustainable state pension system.

The report – titled ‘The 100 billion negotiations’ and authored by Michael Johnson, argued that moving public sector employees to defined contribution schemes instead would help the government focus on improving state pension.

The eight page report published by the Conservative-linked think tank observed that while the main difference remained in their pension arrangements, public sector employees received 13 per cent higher wages than those in the private sector.

The government could save a whopping £100 billion in today’s money in future by simply cutting the cost of public sector pensions by 25%, the report observed.

“The stakes are very high. The relatively lavish pensions enjoyed by many public sector workers are a burden which will largely be met by the private sector,” said Tim Knox, CPS director.

The private sector will become a “defined benefit pensions desert” within the next few years where pensioners assumed own longevity risk, the report said.

The state’s limited capacity to absorb pensions-linked longevity risk could be concentrated to an improved state pension if it also switched to DC schemes, the report noted.

Future savings could be achieved by using economies of scale to save on investment and actuarial fees and consolidating the funded public sector schemes, said Edmund Truell, founder of Pension Corporation.

“This has been successfully trialled in other countries including Canada and Denmark and works to the benefit of all – the pensioners get their accrued benefits and the taxpayer saves vast amounts of money. At the same time, these funds should be allowed to invest in long-term infrastructure projects to the benefit of society more widely,” said Mr. Truell.

The CPS report also questioned the basis of assumptions for real earnings, growth in public sector workforce and productivity in the Hutton report. The pension costs have been projected to come down to 1.4% of GDP by 2060 in the Hutton report. These assumptions have now backfired since unions have used them to argue that public sector pensions are inexpensive.

“Yes, reform of public sector pensions is tremendously difficult. But this must be ruthlessly pursued if we are to have a lasting and fair solution,” observed Mr. Knox.

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