The 'Independent' Public Service Pensions Commission's interim report has been published this morning. The report gives a detailed overview of public service pensions in the UK and the challenges they face. It then sets out a range of options that Lord Hutton will consider before completing his final report before April 2011.
His report does recognise the importance of public service pensions. One in 5 people in the UK have a direct interest. That is higher in Scotland and even higher if you take into account a wider group of dependents. What his report doesn't emphasise is the impact this has on the Scottish economy, including the investment impact of schemes with managed funds.
He highlights the cost of increasing life expectancy by going back as far as 1841. Whilst this may make a good headline, it isn't very informative. We also need to be careful about averages in this regard. Average male life expectancy in the 15% most economically deprived communities in Scotland is 57 years (60 for women). Therefore on average they never live to collect their 'gold plated pension' pension.
Whilst his report does make the usual comparisons with the private sector (although not with private sector bosses!), he does not support a race to the bottom and states that savings levels in the private sector are "not optimal". He might also have pointed out that it is the taxpayer that has to pick up the bill in benefits for the shortfall in employer commitment to their workers pensions.
He indicates that there are few practical short term options to make savings other than a rise in pension contributions. He concedes that the planned change to indexing from the RPI to the CPI will, at a stroke, reduce the value of benefits by around 15%. This rises to 25% when other recent changes are taken into account. He compounds scheme costs by suggesting that the discount rate is at the high end of what is appropriate. This is based on a crude comparison with private sector schemes that in our view is not justified.
The report sets out a number of pension principles against which long-term options for reform should be judged. Some of these are reasonable and includes some recognition of the consequences of reform on benefits such as pension credit. This is particularly important for most of our members who struggle to pay existing pension contributions and could result in much greater opt outs. There is a clear ideological line in the report on the importance of removing barriers to outsourcing, no doubt reflecting Lord Hutton's New Labour past. However, the obvious risk is that he promotes the very race to the bottom in pension provision that he claims to want to avoid.
He leaves the manner and level of increases to the Government. Public service workers are already paying increased contributions, they also face pay freezes and other attacks on their terms and conditions. This would be a further tax by the UK Government on workers to bail out the fat cat bankers and corporate bosses whose pension pots remain untouched. The government ought to be focusing attention on those employers who don't contribute a penny towards their workers pensions, leaving the taxpayer to pick up the long term benefits bill.
Lord Hutton's long-term options point to a move away from final salary to career average or hybrid schemes, whilst recognising that the defined contribution model is not suitable for all employees. There is also a strong hint that retirement ages will increase. However, all of this is for the final report and UNISON will need to continue to make the case for schemes that remain sustainable and affordable whilst providing a decent income for workers in retirement.