Association of Consulting Actuaries publishes paper on public sector pensions

The Association of Consulting Actuaries (ACA) has published a discussion paper on bridging the gap between private and public sector pensions.

In the paper, Placard, which was published on 28 November, Michael Johnson, research fellow for the Centre for Policy Studies, said market-linked pensions should be adopted for the entire public sector, while Stuart Southall, chairman of ACA, called for middle-way approaches that close the pension gap between public and private sector employees, with a wider sharing of the risks involved in delivering pensions across the board.

Referring to the government’s latest negotiations with trade unions, Johnson said that the offer verges on “an unconditional surrender to the unions, perhaps on a scale unprecedented in the history of public sector labour negotiations. The price will be paid by those who are not at the negotiating table: the private sector and the young.”

In the paper, Johnson called for unfunded public sector schemes to be replaced by a notional defined contribution (DC) framework, after an interim period where public sector employees would be covered by career average defined benefit (DB) schemes.

He added that all public sector employees should be compelled to participate in the national employment savings trust (Nest), in part to help catalyse a savings culture among 20% of the workforce.

He said: “The state’s limited capacity to absorb pensions-derived longevity risk would then be concentrated into an improved state pension.”

According to Southall, a total DC solution across the public and private sectors would deliver either comparability or the greater pension certainty that is sought by the public.

Southall said: “If it is possible for us to afford mildly watered-down DB pensions for the public sector, it cannot be beyond our ambition to find ways to deliver affordable, sustainable and more certain private sector pensions.

“The gradual uptake of more risk-sharing schemes in the private sector will help to close the gap with employees engaged in the public sector, who seem likely to retain pensions of a much more generous nature than those generally applying in the private sector at present.”

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