ATL

The Hutton Review

The Independent Public Service Pension Commission led by ex-Labour cabinet minister John Hutton published its final report in March 2011.

Ex-Labour cabinet minister John Hutton was appointed to head a commission into public sector pensions in June 2010. Lord Hutton's interim report was announced in early October 2010. For details of how the new changes will directly affect you, see the latest pension FAQs.

Hutton Review - final report

Key points from the Hutton review final report:

• The government must honour in full the pension benefits already earned by members. Final salary will be linked to past service.

• Career average revalued earnings (CARE) schemes should replace existing final salary schemes in the future. Final salary schemes are unfair and reward high-flyers disproportionately, the report says.

• Retirement age in the new CARE schemes should be linked to state pension age.

• It is undesirable for future non-public sector workers to have access to public sector pension schemes, the report says.

• The report rejects the myth that public service pensions are 'gold plated' and argues against 'a race to the bottom', referring to the low levels of pensions benefits in the private sector.

• Contributions should be increased in order to meet the government's objectives, the report says. Low-paid workers should be protected, increases should be staged and implemented in a way that minimises opt out rates.

• Up-rating of past salaries for pension purposes should be linked to average earnings rather than inflation.

• Changes should be implemented before the next parliament in 2015.

ATL's view

Key points in ATL's submission to the Hutton Review:

• We do not accept that public service schemes are unfair because they reward high-flyers disproportionately. The public service pension's model means that all employees are in the same scheme and benefit from the same scheme model. A teacher is in the same pension scheme as the headteacher. And in the Local Government Pension Scheme, high earners contribute a greater percentage of their income towards their pensions. Public service pension schemes are equitable.

• Final salary schemes better reflect and maintain income levels at retirement. Mechanisms are already in place that prevents high flyers from overly benefiting from increased salaries shortly before retirement.

• A CARE scheme would reduce the pension of the vast majority of scheme members and does not specifically tackle the perceived unfairness of high flyers.

• In order to protect the lower paid, it is likely that increased contribution rates will be tiered, so that the more you earn the more you pay. When combined with a CARE scheme, this will result in the higher paid employees paying more, but receiving disproportionately less in their retirement.

• We disagree that retirement ages should be increased. Education professionals face a physically challenging job and working in the front line in classrooms at the age of 65 or higher is not practical. We may be living longer, but not necessarily in good health. Members in their 50s and 60s do not have the same strength and stamina as they once possessed in their 20s, 30s and 40s.

• We disagree that contributions should be raised in order to fulfil the government's requirement for short-term savings. Mechanisms already exist within the schemes that require future costs are met by employees and cap the contributions employers make towards the scheme.

• Increasing the contribution rates under the current proposals will lead to a significant numbers opting out of the scheme.

• ATL strongly opposes any change to the scheme that excludes teachers who work in the independent sector. The ability to retain membership in the scheme between sectors is clearly an incentive and ATL would argue that this should be maintained and not rescinded.

• At a time of high inflation (RPI is currently 5.1 per cent and CPI is 4 per cent) and teachers and support staff facing a pay freeze in 2011 and 2012, job cuts and increased workloads due to the cuts, an increase in contribution rates is a cut in take-home pay.

• The cost of providing public service pensions as a proportion of GDP is the most appropriate measure and was used by the National Audit Office in their report last year and Lord Hutton agrees. Using this measure, the cost of public sector pensions is projected to fall from a peak of 1.9 per cent of GDP in 2010-11 to between 1.5 and 1.2 per cent of GDP by 2060. So costs are already coming down and are manageable.

• Our members are already facing lower pensions as the impact of the change to CPI takes affect. This year a teacher or support staff member on a pension of £10,000 will be £150 worse off and during a 25 year retirement could be around £36,000 worse off.

• Even without any changes recommended in today's report, public sector pensions have been reduced in value by 25% by a mix of negotiated change and the Government's arbitrary switch to the CPI measure of inflation.

• ATL believes that as a result of the government's actions, many teachers and support staff members will take their pensions early and the cost to the tax payer could be as much as £2 billion pounds, further increasing costs.

• We urge the government not to tamper further with the one area of pension provision in the UK which is working and providing decent pensions for retirees. Instead the government should be focusing its resources on improving the pension provision of private sector employees, so that all groups in society can live in retirement with dignity.