This morning we had sight of the long awaited report by Lord Hutton on public service pension schemes. As expected he is recommending long term structural reform of the schemes that involve more than one in five Scots.
The headline recommendation is a shift from final salary schemes to one related to career average earnings. This is not a problem in principle so long as the overall value of the benefits is not reduced. A key issue is how each year's accrual is indexed. John Hutton is recommending that this should be done by average earnings and this is likely to be a reasonable basis for negotiation. However, we wait to see what the UK Government reaction will be to this proposal given their obsession with the CPI for indexing.
Reform should be on a scheme by scheme basis because the membership varies considerably. Scotland's pension schemes have been the subject of major reform in recent years and already have cost sharing principles built in along with many of the reforms recommended in this report. We would agree with the report's recommendation that there should be stronger governance and member involvement in running pension schemes.
The commitment to honouring in full pensions promises already paid for by scheme members is of course welcome. How this fits with the Con-Dem coalition's decision to index benefits through the CPI rather than the RPI is less clear. Staff have paid into the scheme all their working lives only to find benefits slashed by over 15% when they retire.
Many of the recommendations in the report fall under devolved powers, although the Con-Dem government is using financial levers to pressure Scottish Ministers. Lord Hutton is recommending overarching primary legislation to set a framework. It remains to be seen how restrictive this framework would be and the consequential impact on devolved responsibilities. For example there are no changes proposed in this area in the Scotland Bill.
Lord Hutton is undoubtedly sincere when he states that he wishes to avoid a 'race to the bottom' in pension provision. His report has also done much to dispel the myths around the 'gold plated pensions' promoted by the right wing media and Nick Clegg the Deputy PM.
However, the Chancellor's decision to use Lord Hutton's interim report as cover for contribution increases of 3.2% has fatally undermined his report. The £375m raised from Scottish public service workers will go straight into the Treasury - not the pension schemes. This is little more than a tax on scheme members and will result in further opt-outs from the scheme, placing new burdens on welfare benefits.
I have spent a lot of time talking to members about pensions in recent years. Politicians at all levels should be left in no doubt that public service workers will not tamely accept this daylight robbery of their hard earned benefits.