Public sector pension reform set to challenge the new Government
02 June 2010 / by Lois Avery
Pension reform for the public sector is set to become one of the Government’s biggest challenges after plans to shake up the system were announced in last week’s Queens speech.
The new Government has outlined its proposals to alter pensions, including scrapping the default retirement age, linking pensions to earnings and abolishing the current compulsory annuitisation.
But reform for the public sector still remains contentious, with many people enrolled on company schemes becoming disillusioned with what’s on offer.
There are seven main public sector pension schemes, covering teachers, civil servants, local authorities, armed forces, fire, hospital and police but six of them are unfunded. They are paid for by today’s staff contributions, with the Government making up the difference but there are more questions being raised about the affordability of these schemes.
Many final salary schemes have already been removed by large companies but there are fears that the final salary schemes could be scrapped all together in favour of cheaper but less lucrative pension funds.
Dr Ros Altmann, member of the Public Sector Pensions Commission, said: “Pensions of this quality have now largely disappeared in private industry. It is not fair to ask taxpayers, who often have no pension at all, to pay higher taxes to meet these bills. It is like asking the boss to pay his employees a salary he can’t afford for himself.”
“Staff must be told precisely how much they (public sector schemes) cost, so they are clear about what they represent in terms of additional pay. In some cases it is worth nearly 40 per cent of salary. This will then enable them and those working in private industry to compare the value of different jobs more accurately.”
Most recently The University and College Union (UCU) balloted members over proposed alterations to the Universities Superannuation Scheme (USS), saying the changes are “unacceptable” and will leave staff out of pocket.
USS is the main pension scheme for academic and support staff in more than 300 universities, and is the second largest private pension fund in the UK.
UCU general secretary Sally Hunt said: “This consultation shows how important pensions are to our members. There is clearly little, if any support, from within the profession for the employers’ CARE (career average revalued earnings) proposals.”
Although nothing is set in stone the possible Government reforms to the public sector pensions could include forcing all staff to wait longer for their pension. The final salary arrangements could be scrapped, Index-linking could be ended and contributions could be sharply increased.
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