Public pensions: Hutton says agreement needed urgently

Lord Hutton Lord Hutton is often cited by ministers in support of their controversial pension reforms

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The downgrading of Britain's growth forecasts has made the case for public sector pensions reform more urgent, Labour peer Lord Hutton has said.

The former minister, who conducted the coalition's review on pensions, said change was now the "order of the day".

He also told the BBC the government's offer was a "perfectly credible" one.

But unions, who say two million workers went on strike over the issue last week, argue their members will have to work longer and pay more, but get less.

The government wants public sector workers to pay more towards their pension schemes, retire later and accept a pension based on a "career average" salary, rather than the current arrangement based on their final salary.

On average, workers face paying an extra 3.2% of their salaries in pension contributions.

The recommendations from Lord Hutton's independent review are at the heart of these proposals.

The former pensions minister told BBC Radio 4's The World This Weekend that his original assessments about the sustainability of future pension arrangements had been too optimistic.

'Heading for rocks'

He said the savings from an overhauled system should be brought forward as quickly as possible.

He was speaking days after the Office for Budget Responsibility said it now expects growth of 0.9% this year, down from the 1.7% predicted in March.

The prediction for next year has fallen to 0.7% from 2.5% predicted in March.

"Growth is slower. We know that by 2016 on the latest projections the economy is going to be about 3.5% smaller than we thought it would be," Lord Hutton said.

"That is going to affect the sustainability of public sector pensions in a negative way.

"The ground underneath those estimates has changed radically and I'm afraid in the wrong direction so we cannot be sure that the costs will fall over time and that we get to a more sustainable balance.

"The events of the last couple of weeks have confirmed that change is going to be the order of the day now, if we're going to remain competitive, successful as an economy... we could be heading for the rocks unless we make adjustments now."

He said the government's offer would give "significant protection" to workers close to retirement as well as "very generous accrual rates".

But he also said the unions had raised some genuine concerns, and he agreed with warnings that current plans could force large numbers of people on low or moderate incomes to opt out of their pensions altogether.

"I think there is a genuine issue between the unions and ministers about the pension contributions, which I hope is the subject of further discussion," he said.

'No concessions'

"I don't think you can build long-term reform on forcing people out of saving for pensions, that is a crazy way to do it."

He added: "I hope ministers can look again at some aspects of the way they're planning to increase pensions contributions."

For Labour, shadow home secretary Yvette Cooper said the government was going further than Lord Hutton's recommendations and had effectively introduced a "3% surcharge" on workers' contributions.

"That is not something that was in Lord Hutton's report," she told the BBC's Andrew Marr show.

Brian Strutton, from the GMB union, said Lord Hutton had not taken into account that caps on pay rises and job losses in the public sector meant the cost of pensions as a share of overall GDP would still fall despite the drop in economic output.

He added: "It is good that Lord Hutton has belatedly agreed with unions that the government's 50% contribution increase on public sector workers is too much and will drive people out of pension saving.

"In all the months of talks, the government has made no concessions on this point which is necessary if substantive progress is to be made in the ongoing talks."

MPs' pensions

Meanwhile, ministers themselves face a £4,000 rise in their pension contributions in a move aimed at showing they share the financial burden felt elsewhere in the public sector.

Prime Minister David Cameron has written to colleagues, the Mail on Sunday reported, to say they cannot expect low-paid workers like nurses and dinner ladies to "take on a burden we are not prepared to assume for ourselves".

Rises planned over the next three years would see Cabinet ministers contributing 17.9% of their £69,000 salaries to get the same benefits - equivalent to an extra £4,000.


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  • rate this

    Comment number 1044.

    It looks like Hutton is heading towards honesty at last. His original report was a calculated hatchet job on PS pensions. He over played the situation then and now he's telling us that his estimates were incorrect. Why? Well it's not so much the economy which made pensions unaffordable but the fact that Govt. is sacking tens of thousands of PS workers. Less of them less money going into the pot.

  • rate this

    Comment number 1043.

    "On average workers face a 3.2% rise in their contributions" - correct but comment is not in context. Actually our (I'm a teacher) contributions are set to rise by nearly 50% (As a percentage of what we pay currently). And we will pay this for 5 or more years longer, to get less at the end of it. Come on.

  • rate this

    Comment number 1042.

    We have to get away from this "if I can't have it neither can you attitude". We in the PS suffer lower wages with the thought of the pension that is coming. We contribute a large (11%+) amount to the pension. Private sector have had there good times and they will come again! I for one would suffer increase in contributions and career average, but I am not doing more years.

  • rate this

    Comment number 1041.

    @1005 North Briton and others
    The beauty of the Scandinavian system is that everybody pays pension contributions from every salary as prescribed by law. The money goes to specialised insurance companies. The state guarantees the savings, and the pensions. The problem in Britain is that so many people (private sector) do not save for their pension, so the state (=taxpayers) have to foot the bill.

  • rate this

    Comment number 1040.

    How do you expect anyone, an employer or the governement, to be able to make a promise on how much pension they will be able to pay in 20-30-40 even 50 years time?

    Still waiting for an answer.....

  • rate this

    Comment number 1039.

    MPs should have started the restructuring their pensions before picking on the public sector workers. They get huge payoffs when they leave gov and a pension as well no matter how short a time the have been an MP

  • rate this

    Comment number 1038.

    Mr Hutton saying his pension proposals should be speeded up because economic growth for the next 3 years is forecast to be lower than 6 months ago, just about sums up his total lack of intellectual competence: Pensions are not, never have, & never will be based on short term finance: they're based on long term - 30-45 years of investment & economic factors. His proposals are therefore worthless..

  • rate this

    Comment number 1037.

    Furrowed Brow how dare you compare jobs, who do you think you are? This is exactly the high brow nonsense that turns PS employees against Private Sector, partcicularly those that are NHS, Police, Fire Service etc - blackmail. I don't stack shelves you idiot and it's exactly people like you who turn Private Sector against the PS

  • rate this

    Comment number 1036.

    Of course your firm like most exploit loop holes in tax that as you can see is affecting us all and myself live in an area where this year there has only be 5 shootings, a big drug cartel and a international arms dealer taken down, by who the agencies who recieve the PS pensions...i dont begrudge them that for the good/dangerous work they all do - Q. do you think you should get a PS type pension?

  • rate this

    Comment number 1035.

    Let us also consider those in parliament like Lord Hutton himself who are also public servants and review their pension entitlements.

    Pensions from the public purse should also be about need.
    I doubt that they would like to vote themselves a pay and pension cut of 50% so that UK purse strings can be better managed.

    If this is not the case he should SHUT UP!

  • rate this

    Comment number 1034.

    So according to this idiot millions or people should put up and shut up because according to his calculations the economy will be bad now until the end of time and there is nothing the government can possibly do.

  • rate this

    Comment number 1033.

    I found this interesting fact!
    Tax Research LLP has found that the amount government pay in subsidies to the UK private pension industry was £37.6bn or around a quarter of the government's fiscal deficit.
    "The private pensions industry is the most heavily subsidised industry in the UK,"

  • rate this

    Comment number 1032.

    Yet more money taken out of the pockets of consumers - public sector workers this time - yet more aggregate demand lost in a rapidly cooling economy with no prospect of maintaining our current level of exports as we approach the precipice of a deep, longlasting recession which will take a decade to recover from.

    Economic suicide.

  • rate this

    Comment number 1031.

    Most nurses will not be physically able to do the job until they are 67. Many who started their careers when lifting equipment was unavailable and certain lifting techniques taught (later dropped as being detrimental to health) have back and joint problems. I still work but not on the wards and am in my fifties. I enjoy my work but public job cuts loom in 2012/13 in my sector.

  • rate this

    Comment number 1030.


    Sorry my PS job isn't important enough for you.
    Last night (while you were asleep after shelf stacking for your FTSE10 company) I was monitoring a patient who has horrific traumatic wounds and burns. I was dressing his wounded limbs, which are split open exposing muscles and tendons. You can even see the arteries pulsing.

  • rate this

    Comment number 1029.

    Re 1015 thefaulks
    Yes - Peston puts a credible case . All the western economies are broke because of greed and laziness . Strike anyone ? Tell your kids to learn chinese !

  • rate this

    Comment number 1028.

    happy1feet my firm isn't perfect, as the vast majority of employers aren't (Private or Public Sector). I'm not 'top brass' (I was born and bred on a council estate although I have a degree) and I work as hard as anyone in any sector. I don't receive a gold plated pension - I'll live on it, why should PS be any different?

  • rate this

    Comment number 1027.

    1017 P North - The private sector has been through worse because it has been de-unionised (15% as opposed to 54% for public sector). The one off tax on top 10% would eliminate the structural deficit and we could close the £120bn tax gap. The richest in other countries are asking to be taxed more (i.e. Warren Buffet) and it shouldn't scare them off as they always make more money in the good years.

  • rate this

    Comment number 1026.

    The public sector pension contributor is not paying into a pot for their own pension. They are paying for everyone in society who needs support right now, including the workers of 'entrepreneurs' so vociferous on this forum and so negligent when it comes to paying staff what they deserve. Business owners - instead of your multiple holidays, big houses and cars, how about paying staff a fair wage?!

  • rate this

    Comment number 1025.

    Can anyone believe that the status quo is sustainable ? With people living so much longer, the state can't afford to pay more and more each year. There has to be a reduction, and if it is recommended by an ex-Labour Minister, Lord Hutton, surely he can be seen as objective ?


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