I met Lord Hutton today on his visit to Scotland as part of his evidence collection towards his final report on public sector pensions. He was keen to discuss the risks in public service schemes, how we had approached cost sharing and how governance could be strengthened.
The one risk missing from his matrix is opt-out. Whilst opt-out is lower in Scotland it still runs at over 15% on average. Whilst Lord Hutton is undoubtedly sincere in his wish to extend membership, the actions of the UK Government are driving opt-out and increased reliance on state benefits. The massive increase in contributions at a time of real term pay cuts will be the main driver. A survey in Pensions Week showed that 65% of staff earning below £25k would opt out if their contributions increased above 6% and that reflects our own feedback.
The other factor driving opt-out will be the lack of certainty. Whilst Lord Hutton is looking at defined benefit schemes, some of his options, like cash balance schemes, don't provide certainty of benefits in retirement. When members see the government unilaterally cutting the value of pension benefits by 15% through the RPI/CPI switch, confidence slips away.
So whilst some of the principles in Lord Hutton's review may be well intentioned, these are being undermined by the actions of the UK Government. Their actions are driving a race to the bottom in pension provision that will cost us all dear in the long term.