By Max Clarke

The CBI today (Thursday) commented on the final report by Lord Hutton’s Independent Public Sector Pensions Commission on public sector pensions.

Commenting on the final report is John Cridland, CBI Director-General:

Lord Hutton’s final report is a big step forward towards making public sector pensions affordable and sustainable in the long-term. His report contains a well-balanced package of measures designed to reduce costs while retaining good pensions. It has skilfully taken the views of all parties into account and we hope that a consensus can form around it.

“What’s vital now is that Lord Hutton’s recommendations are implemented in full by Government and public sector employers. A piecemeal approach simply won’t deliver the right balance of affordability and quality.

“Lord Hutton is wise to propose a clean break from the past by recommending closing all accrual in final salary schemes. He proposes moving to a career average basis, along with other measures, such as raising the retirement age and higher employee contributions, to share the cost and risk better between the employer and employee.

“People will need to work for longer to pay for the fact that they are living longer. There may be exceptions in very demanding jobs, but public sector retirement ages should match the state pension age as is the case in the private sector.

Public sector employees are going to have to contribute more to get a good quality pension when they retire. Greater life expectancy is something to celebrate, but someone has got to foot the bill. Currently the gap between people’s contributions and the benefits they are promised by the Government amounts to £10 billion each year.

“Reviewing the way the Government calculates how much employers and employees need to pay into pensions versus the benefits they will get out is crucial to making these reforms work.

“Currently, the Government underestimates its liabilities, so contributions are too low for the benefits being promised. It needs to move to working out future liabilities by assuming that its ability to pay pensions will grow at a rate mirroring GDP growth. This would currently assume 2 to 2.5%, instead of the current discount rate of 3.5%, and contributions to the new schemes would be more realistic as a result.

“The CBI strongly supports Lord Hutton’s proposals on improved arrangements for governing schemes. As employees contribute more to their pensions, they will demand better governance, and better communication of the way their pension schemes are run.”