To pass the tests of fairness, sustainability and adequacy of retirement provision, the SMF argues that Lord Hutton’s review of public sector pensions should promote a system that shifts the most pension risk onto the highest earning public sector employees. For less well paid staff, the state can afford to bear their pensions costs and should continue to do so in order to prevent a ‘race to the bottom’ for pension provision among employers.
The SMF today publishes a collection of essays from expert authors looking at the options for public sector reform. Contributors to the report, sponsored by the Association of Chartered Certified Accountants (ACCA), compare the generosity of public and private sector pension provision, as well as exploring the options and criteria for effective reform.
Public sector pensions are generous compared to the private sector, and need reform to be sustainable. Final salary schemes in the public sector continue to make taxpayers responsible for public sector pensioners’ financial security, at a time when private sector employees are increasingly meeting the retirement challenge themselves. Taxpayers currently bear many of the financial risks, such as increasing life expectancy leading to higher than planned payouts. The SMF argues that these risks should be shared more fairly. But in doing so, the public sector must be discerning about which employees can bear it.
Commenting, SMF’s Director Ian Mulheirn said:
“Pensions reform is unavoidable. But it is possible to design a financially sustainable system that is fair, while also providing adequate pension provision in retirement. A one-size-fits-all policy won’t work. The government should look at hybrid schemes that provide a stable core of provision for less well-paid employees, while shifting greater responsibilities onto the better-paid to look after themselves.”
John Davies, head of business law at ACCA, said:
“The public sector faces a financially tough 2011 and this will serve to underline the long-term importance of the Government’s current review of pensions. The issues raised in these essays are highly relevant to the debate over how public sector pensions are to be structured and paid for in the future.”
Notes for Editors:
- The Social Market Foundation has today published a collection of expert essays on the future of public sector pensions – one of the most politically sensitive reforms the Coalition Government is making.
- The report will be launched on Wednesday15th December 2010, 3pm-4:30pm, at the SMF with guest speaker Lord John Hutton, the Chair of the Public Services Pensions Commission.
- Lord Hutton launched a call for evidence for his final report on public service pensions on 1st November 2010. The deadline for submissions is Friday 17th December 2010.
- The authors contributing to the book,which include the Pensions Policy Institute and Association of Consulting Actuaries, bring a balanced and objective analysis to one of the most heated and politicised issues of recent times.
- In Public Sector Pensions: Planning the future, the authors explore the connections between private and public sector pension markets, the effect of the recent indexation switch from RPI and CPI, and how risks associated with public pensions could be shared more fairly between the state and employees.
This wide-ranging expert collection includes:
Dr Deborah Cooper, Mercer – Pension promises: comparing the public and private sector;
Jonathan Baume, General Secretary, FDA – An employee view on public sector pensions;
Dr Frank Eich, Pension Corporation- Evaluating public and private sector pensions: the importance of sectoral pay differentials;
Malcolm Small, Director of Policy, TISA – Public sector pensions: the case for defined contributions;
Graeme Muir, Association of Consulting Actuaries – Public sector pension design:the risk sharing revolution;
Niki Cleal, Director, Pensions Policy Institute – The future of the public sector pensions: an assessment of possible reform options against a range of policy objectives;
John Moret, Director of Marketing, Suffolk Life – Some lessons from the private sector