Chancellor George Osborne has announced that the government will increase the level of employee contributions in public sector defined benefit pensions, as outlined in Lord Hutton’s interim Public Sector Pensions Review.
In his Comprehensive Spending Review, Osborne said that the “progressive changes” will deliver an additional £1.8 billion of savings a year by 2014/15.
In response to Hutton’s interim recommendations, the government will:
- Commit to continue with a form of defined benefit pension
The government will consult on the precise level of contributions after receiving Lord Hutton’s final recommendations in Spring 2011.
Deborah Cooper, partner at Mercer, said: “Overall it is seen a sensible thing to do, but there is quite a range of different contribution rates between different public sector schemes, so in some schemes its possible to argue that the contribution rate is high enough already. Certainly some people should be paying more because it will make it more consistent with private sector provision.
"[Increasing contribution levels] is easy to do in the short-term, but more fundamental reforms are need to get remuneration overall in the public sector more consistent with what is happening in the private sector at the moment.”
Stuart Southall, chairman of the Association of Consulting Actuaries (ACA) said: “We welcome the Chancellor’s comments that public sector pensions should remain a ‘gold standard’, but affordable, protecting the low paid in particular.
“It is to be hoped that policy initiatives in the private pensions area are made so that the private sector too can see sustainable quality pensions being continued into the future.”
A further £3.3 billion will be saved from a two-year pay freeze in public sector pay from 2011/12 for those earning over £21,000, as announced in the June Budget.
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