By Claire West

Lord Hutton of Furness today sets out his proposals for comprehensive, long-term structural reform of public service pension schemes.

The final report of the Independent Public Services Pension Commission follows a comprehensive nine-month review. It sets out a number of detailed recommendations to the Government on how public service pensions can be made sustainable and affordable in the future, while providing an adequate level of retirement income.

The main recommendation of the report is that existing final salary public service pension schemes should be replaced by new schemes, where an employee's pension entitlement is still linked to their salary (a "defined benefit scheme") but is related to their career average earnings, with appropriate adjustments in earlier years so that benefits maintain their value.

The report suggests that it should be possible to introduce these new schemes before the end of this Parliament, in 2015, while allowing a longer transition, where needed, for groups such as the armed forces and police.

Other key recommendations in the report include:

* Linking Normal Pension Age (NPA) in most public service pension schemes to the State Pension Age;

* Introducing a Normal Pension Age of 60 for those members of the uniformed services - armed forces, police and firefighters - who currently have a NPA of less than 60;

* Setting a clear cost ceiling for public service pension schemes - the proportion of pensionable pay that taxpayers will contribute to employees' pensions - with automatic stabilisers to keep future costs under more effective control;

* Honouring, in full, the pension promises that have been earned by scheme members (their "accrued rights") and maintaining the final salary link for past service for current members;

* Introducing more independent oversight and much stronger governance of all public service pension schemes;

* Encouraging greater member involvement in consultations about the setting up of new schemes, and in the running of schemes; and

* Overhauling the current legal framework for public service pensions to make it simpler.

Publishing the report, Lord Hutton said:

"These proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs.

"Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.

"The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions."

The report is available from the Independent Public Services Pension Commission website at ensionscommission.