Unions were gearing up yesterday for a summer of discontent in protest at sweeping changes to public sector pensions proposed in Lord Hutton’s much anticipated report.
The Independent Public Service Pension Commission’s final report recommended that pensions no longer be linked to final salaries but instead be tied to average career earnings in a move that would save the government £2 billion a year. Benefits accrued to date under final salary schemes would be honoured, however.
Other suggestions included linking the public sector pension age to the state retirement age, which is now 65 but will rise to 66 in 2020 and 68 in 2046. The pension age for the armed forces, police and fire-fighters should also be increased from 55 to 60, the report said.
But the unions were furious at the suggestions, warning that their implementation could lead to a wave of industrial action.
The GMB branded the report as “fatally flawed” and “just smokescreens for more cuts” because it ignored issues such as affordability. As a result, “vast numbers” of low-paid workers would simply opt out of pension schemes, increasing the burden on the state at a later date.
Brian Strutton, the union’s national secretary for public services, said: “Many of [Hutton’s] conclusions are questionable and will infuriate public sector workers. It’s not cogent enough to be a blueprint for reform, but it might well light the blue touch paper for industrial action,” he warned.
Unison’s general secretary Dave Prentis took a similar stance. “On top of a pay freeze and the threat of redundancy, [workers] now face a pension raid. This brings the threat of industrial action closer”, he said as he urged the coalition government to enter into “urgent, meaningful talks on the report rather than rushing into making cuts”.
But employer lobby group the CBI, on the other hand, described the report as a “well-balanced package of measures” and called on the government and public sector employers to implement them in full.
John Cridland, the body’s director general said that workers simply had to work longer to pay for the fact that they were living longer because the gap between contributions and the benefits they were promised currently amounted to £10 billion a year.
But he added that the government needed to review the contribution versus benefits balance if the reforms were to work. “Currently the government underestimates its liabilities so contributions are too low for the benefits being promised. It needs to move to working out future liabilities by assuming that its ability to pay pensions will grow at a rate mirroring GDP growth,” Cridland said.
This meant dropping the current discount rate of 3.5% and moving to a rate of between 2-2.5%, he added.