John Hutton Public Sector Pensions Review Publishes Interim Report

The Hutton report on public sector pensions published its first report today [PDF, 176 pages]. The final report is due in time for Budget 2011. The BBC has produced some comprehensive coverage here.

The report recommends that workers' level of contributions to their pensions is increased (except for the armed forces). It also suggests that schemes move away from a final salary (defined benefit) scheme. In their press release reaction to the report, Unison opposed this recommendation. Hutton's report stops short of recommending a clear replacement to final salary and talks of various options to be looked at and possible hybrid schemes, though the career average scheme seems to be favourite.

It's interesting that the report devotes quite a few pages (see section 6.20) to discussing the difficulties associated with transferring pensions from the public sector to the private sector, as would happen in an outsourcing scenario, for example. The report notes that evidence from the private and even voluntary sector suggests that current TUPE (Transfer of Undertakings/Protection of Employment) and 'Fair Deal' regulations hamper the flow of workers from the public to private sector because of the extra risks and costs involved to the private sector.

Lord Hutton seems at pains to dispel the idea that public sector workers receive a 'gold-plated pension', an image emphasised in the media in recent months. He quotes the average public sector pension as being 'modest' at around £7,800, though I suspect this is the average pension across all workers, rather than, say, the average pension of a life-long, full-time worker, which is perhaps the more illuminating measure.

Length of service effect on public sector pension
Lord Hutton does not recommend moving public sector schemes in line with the local government pension and turning them into self-funding models, nor does he advocate the reverse.

The report states a desire to avoid a race to the bottom and labels current private sector pension provision as "inadequate". See the graph below to see the difference in coverage between the sectors.

Number of people in UK pension schemes
In section 7, the report mentions the difficulties of working with the underlying data. These are problems that I suspect will be familiar to any amateur researcher into public sector facts and figures, so it's interesting to see Lord Hutton note those same problems.

All graphs from the original report.