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Government and unions may clash over pension scheme plans

7 October 2010

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The government and the unions may be on a collision course after a new report urged final salary pension schemes for those working in the public sector to be ended.

According to Lord Hutton, the former Labour Cabinet minister, long-term structural reform is needed in public sector pensions.

He said it included the possibility of calling time on current final salary schemes.

In the report, Lord Hutton said the new structure should involve the government and workers sharing risks more evenly.

He did however rule out introducing individual defined contribution schemes in place of final salary schemes.

Under individual schemes, which have been introduced in the private sector, the employees bear all of the risk.

Lord Hutton said he would consider a range of alternatives in his final report, including a career average scheme, under which pensions are based on a worker’s average pay during their career, rather than their salary immediately before they retire.

Other options include hybrid schemes, which share the risk, and collective or notional defined contribution pensions.

He added that if the government wanted to make short-term savings, it should raise pension contribution rates for workers.

But he stressed that it should protect the low-paid from the increases and not hike rates for the armed forces at this time.

Copyright © Press Association 2010

Department for Work and Pensions

Your comments (terms and conditions apply):

“I attended a  pensions choice seminar a few months ago and was told that NHS pensions were self funding – what has changed? I note the media frenzy round the high pensions. Since many NHS workers get about £7,000 a year pension, I do not call that astronomical” – Name and address withheld