The Chancellor announced today that John Hutton has accepted his invitation to chair the independent Public Service Pensions Commission. The commission will undertake a fundamental structural review of public service pension provision by Budget 2011. It will produce an interim report in September 2010 ahead of the Spending Review.
Scope of the Commission’s work
The commission will make recommendations on how public service pensions can be made sustainable and affordable in the long-term, fair to both the public service workforce and the taxpayer, and ensure that they are consistent with the fiscal challenges ahead.
The Commission will consider issues including:
- the growing disparity between public service and private sector pension provision;
- the need to ensure that future pension provision is fair across the workforce;
- how risk should be shared between the taxpayer and employee; and
- wider Government policy intended to encourage adequate saving for retirement and longer working lives.
Existing accrued pension rights will be protected.
The full terms of reference for the Commission are set out in the notes for editors.
Timings of its report
The Commission will produce an interim report in September 2010, considering the case for short-term savings within the Spending Review 2010 period, consistent with the Government’s commitment to protect those on low incomes. The Commission will produce a final report in time for Budget 2011.
The Chancellor said:
The long-term sustainability and affordability of public sector pensions is crucial for sustainable public finances both in the UK and internationally. We must consider options for reform that are fair to the taxpayer and to people who work in the public sector. I am delighted that John Hutton has accepted my invitation to chair the Commission. John is an experienced public servant, who I know will bring a clear and unbiased analysis to bear on this complex and important issue.
John Hutton said:
Reform of public sector pensions is a huge challenge for both the public finances and the public sector workforce. I welcome the opportunity to lead a root and branch examination of both the short-term and longer-term options for reform to public sector pensions. I am determined that this work should be conducted openly and transparently and that our conclusions will be underpinned with a comprehensive analysis and evidence-base.
Notes for editors
The independent Commission on Public Service Pensions was a key part of the Coalition’s Programme for Government.
The total cost of unfunded public service pensions in 2010/11 is estimated at £25.4 billion, excluding funded schemes such as the Local Government Pension Scheme. This is more than twice the cost of Child Benefit.
Only one third of private sector employees now get pensions contributions from their employer - and for those that do the average contribution is 10 per cent compared to 18 per cent in the public sector.
On the figures published by the Office for Budget Responsibility last week, the gap between contributions and pensions in payment is set to more than double over the next four years to £9 billion.
Based on published resource accounts, the Government Actuary’s Department (GAD) has estimated the long-term liability of unfunded public sector pensions, excluding funded schemes such as the Local Government Pension Scheme, at £770 billion as at 31 March 2008.
John Hutton is a former Secretary of State for Defence, for Business and for Work and Pensions. He was ennobled in the Dissolution Honours.
The Commission’s terms of reference are:
To conduct a fundamental structural review of public service pension provision and to make recommendations to the Chancellor and Chief Secretary on pension arrangements that are sustainable and affordable in the long term, fair to both the public service workforce and the taxpayer and consistent with the fiscal challenges ahead, while protecting accrued rights.
In reaching its recommendations, the Commission is to have regard to:
- the growing disparity between public service and private sector pension provision, in the context of the overall reward package - including the impact on labour market mobility between public and private sectors and pensions as a barrier to greater plurality of provision of public services;
- the needs of public service employers in terms of recruitment and retention;
- the need to ensure that future provision is fair across the workforce;
- how risk should be shared between the taxpayer and employee;
- which organisations should have access to public service schemes;
- implementation and transitional arrangements for any recommendations; and
- wider Government policy to encourage adequate saving for retirement and longer working lives.
As part of the review, the Commission is invited to produce an interim report by the end of September 2010. This should consider the case for delivering savings on public service pensions within the spending review period - consistent with the Government’s commitment to protect those on low incomes - to contribute towards the reduction of the structural deficit.
The commission is invited to produce the final report in time for Budget 2011.
- For civil servants:
- Principal Civil Service Pension Scheme
- Principal Civil Service Pension Scheme (Northern Ireland)
- Armed Forces Pension Scheme
- For NHS employees:
- NHS Pension Scheme
- NHS Superannuation Scheme (Scotland)
- Health and Personal Social Services Northern Ireland Superannuation Scheme
- For teachers:
- Teachers’ Pension Scheme (England and Wales)Scottish Teachers’ Superannuation Scheme
- Northern Ireland Teachers’ Superannuation Scheme
- For Local Government:
- Local Government Pension Scheme (England and Wales)
- Local Government Pension Scheme (Scotland)
- Northern Ireland Local Government Pension Scheme
- Police Pension Scheme (administered locally)
- Firefighters’ Pension Scheme (administered locally)
- United Kingdom Atomic Energy Authority Pension Schemes
- Judicial Pensions Scheme
- Department for international Development - Overseas Superannuation Scheme
- Research Councils’ Pension Schemes
In addition to the schemes mentioned above, there are a number of smaller schemes and many established to cover only one senior appointment which do not specifically need to form part of the review but which will be required to act on the recommendations.
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