Hello Bloggers…

This week I return to the vexed issue of public sector pensions (see previous Blog post – Looking at a Black Hole).

Radical new proposals from the European Union are being drafted in a 17-page pensions’ Green Paper that appears not to help the UK problem. John Cridland, deputy director-general of the CBI has been quoted as saying the EU paper is “misguided”. All in all if the proposals from the EU are implemented projections estimate this would cost Britain an eye-watering £500bn; with mounting concern about the adverse impact on economic growth. The CBI argue the EU ’one size fits all’ approach does not account for differences in the pension rules across Member States.

Add into the mix the deficit in public sector pensions funding and the problem appears to be gargantuan. A report published by the Public Sector Pensions Commission (7 July 2010) has warned that public sector workers may have to double their pensions contributions. Pensions consultancy Towers Watson estimate a pensions deficit of £1.2 trillion – nearly two thirds higher than official figures released about the shortfall.

The week has seen intense media speculation that the new pensions’ commission led by John Hutton (former Labour defence secretary) will require public sector workers to increase contributions to pensions’ schemes from as early as spring 2011. Civil servants could come under pressure first to increase their contribution rate from 1.5% – as it currently stands. Other options being bandied about include forcing higher paid public servants to make a higher contribution, and closing final salary schemes to future accrual.

Whatever option is chosen by Mr Hutton and the pensions commission tough choices and tougher decisions look inevitable.