We’ve recently seen considerable media interest in the state of public sectors worker’s pensions – this level of interest has been heightened by the Hutton review – Lord Hutton (previous labour minister) has been commissioned by the Coalition Government to make recommendations about the future of public sector workers’ pensions. John Hutton unveiled the Independent Public Service Pensions Commission’s Interim Report on 7th October 2010.
A significant reason why Lord Hutton’s report suggests public services pension reform is needed is that people who are deemed to be high-fliers often gain disproportionate pension rewards compared with other workers.
There are a number of likely options for the future of the public service pensions – all of which will probably see greater contributions (especially for more highly paid workers), or even the phasing out, or cessation of the final salary scheme. Whilst the current economic situation is a contributory factor there are other issues driving the need for change such as: increasing life expectancy, the approach of the baby boomer generation into the age of retirement and growing numbers in the UK population.
The press portrays the cost of pension schemes as a public sector problem. But is it confined to the public sector?
A report by Jamie Dunkley for the Daily Telegraph, 9 October 2010, notes that Asda (the supermarket giant) is to close their final salary pension scheme because the shortfall in the scheme’s funds has grown from £210m to £400m in under a year. Some 3,800 Adsa workers are being offered a buy-out of 25% of annual salary to move from a final salary scheme to a defined contribution scheme. Such action is not limited to Asda though and other big-name companies have also recently closed their final salary schemes including: Aviva, Barclays, Dairy Crest, Morrisons and Vodaphone.
It looks like the days of the final scheme – irrespective of sector – are numbered and all schemes face the possibility of being pensioned off.