Dated: 7 October 2010
Responding to Lord Hutton’s interim report, the Institute of Directors (IoD) makes the following points:
- We welcome that Lord Hutton recognises the “status quo is not tenable” in public sector pensions and that his final report will look at a “range of radical solutions”.
- Only when his final report is published will we see if the Coalition has the appetite to deliver the strong, radical reforms to public sector pensions that are needed.
- It is unfortunate that Lord Hutton says the public sector should provide pensions to which the private sector should “aspire”. This implies a continuation of some form of Defined Benefit scheme in the public sector at a time when these are fast becoming extinct in the private sector for good reasons.
When Hutton publishes his final report, the Government must not duck the problem. Failure to deliver some of the following options would show that the Government is not serious about pensions reform:
Short term reform options
- An immediate increase to employee contribution rates across the board
Long term reform options
- Increase pension ages
- Reducing accrual rates
- Introduce career average schemes
- Introduce a ceiling on the level of pensionable pay
- Cap the degree of inflation indexing of pensions
- Move to funded defined contribution in the public sector
- Move to notional defined contribution in the public sector
Commenting on Lord Hutton’s interim report, Malcolm Small, Senior Adviser on Pensions Policy at the IoD said:
“Only when Lord Hutton’s final report emerges will we see the appetite of the Coalition for delivering the strong, radical, reforms that are necessary to make public sector pensions affordable in the long term. Any failure to implement radical options would show that the Coalition is not serious about public sector pensions reform. This would be a disaster for long term public finances. Taxpayers can’t afford another government postponing the difficult decisions on public sector pensions.”