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Pensions anger from unions following Hutton review

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Media captionWatch: Lord Hutton said a career average pension scheme would be fairer for many public sector workers

Unions have reacted angrily to a major report proposing a radical overhaul of public sector pensions which would see millions working for longer.

Lord Hutton's independent review has proposed that nurses, teachers and most other public sector staff work until at least 65 for lower pensions.

Pensions should be linked to career average earnings, rather than workers' final salaries, it suggested.

The government said it would give the proposals "careful consideration".

Lord Hutton's key recommendations included:

  • Linking the pensions of public sector pensions to average salaries over workers' careers, rather than their final salaries, possibly by 2015, to make pensions "affordable"
  • Aligning the public sector pension age to the state pension age, which will be 65 initially and is likely to reach 68 for men and women
  • Uniformed services, such as police and firefighters, working until 60
  • Honouring in full the pensions that workers have already built up in final-salary schemes.

The government has already accepted a previous recommendation of Lord Hutton that public servants should soon pay higher contributions.

Unions said they would consider strike action were the plans given the go-ahead.

TUC general secretary Brendan Barber said: "Public sector workers are already suffering a wage freeze, job losses and high inflation. They are now desperately worried that they will no longer be able to afford their pension contributions, and will have to opt out."

The Prime Minister's official spokesman said the government would engage with public sector unions in taking forward the reforms.

Shadow chief secretary to the Treasury, Angela Eagle, said pension reform was a long-term issue, and should not be used by the government to tackle the deficit.

'Reform'

Lord Hutton's public services pensions commission has spent the last nine months looking at the large pension schemes covering civil servants, the NHS, teachers, local government staff, the police, armed forces and the fire service.

He argued that his changes amounted to "comprehensive reform" which would make the schemes "sustainable and affordable in the future" under the pressure of rapidly rising life expectancy.

"These proposals aim to strike a balanced deal between public service workers and the taxpayer," Lord Hutton said.

"They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs.

"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," he added.

Ros Altmann, a former government pensions adviser and now director of Saga, said: "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."

Cheaper to fund

Lord Hutton stressed that pensions earned so far should retain their link with final salaries.

But pensions earned in the future should be built up in new career average schemes, which he says should be in place by 2015.

By definition these will produce lower pensions unless staff work longer to compensate. They will also be cheaper to fund.

Lord Hutton also recommended that the normal pension age (NPA) of the new schemes should be linked to the state pension age.

That would involve increasing the NPA from 60 to 65 for some current public employees, and building in future increases for all staff as the state pension age rises progressively to 68, starting in 2020 with an increase to 66.

The police, armed forces and fire service currently have normal pension ages lower than 60 but Lord Hutton said they should retire at 60 in due course.

But Matt Wrack, Fire Brigades Union general secretary, said: "This is the great pension's robbery and is completely unacceptable to firefighters across the UK.

"Expecting firefighters to work until they are 60 is wrong. Firefighting is a physically arduous job. Peak fitness is essential where seconds can cost lives. The public will not want an ageing frontline fire and rescue service."

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Media captionTeacher Ron Gordon did not expect a footballer's wage but went into the profession expecting a good pension

The National Association of Pension Funds (NAPF) said the proposals were sensible.

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

"Public sector workers will still retire with a good pension, and it is important that they can bank what they've already built up."

'Not tenable'

In general, Lord Hutton argued, a ceiling should be imposed on employers' contribution rates to the pension schemes.

He said the current set-up was "not tenable in the long term".

Some public servants are already in career average schemes with a pension age of 65, such as recruits to the civil service since 2007 and GPs and NHS dentists appointed since 2008.

Lord Hutton, a former Labour pensions minister, was asked by the coalition government to conduct a review of public service pensions soon after it was elected last year.

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Media captionBrendan Barber, TUC: 'Public service workers have already taken a big hit'

In his interim report, he rejected the idea that public service pensions were "gold-plated", pointing out that the average pension in payment was modest at about £7,800 a year.

And he rejected suggestions from employers' groups that public service pensions should be at the level of inferior private sector pensions, describing this as a "race to the bottom".

Lord Hutton also pointed out that the long-term cost of funding public service pension schemes had already been cut by 25%.

He pointed to measures such as uprating pensions in line with the typically lower Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI).

He also said some big schemes had already decided to raise the normal pension age for new recruits to 65 rather than 60.

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