Hutton Commission Final Report

14/03/2011

Hutton Commission Final Report: Headlines

NB 1. The Government has yet to accept the recommendations

2. There are many recommendations which refer to the management and design of pension schemes which will be important in any forthcoming negotiations. This paper concentrates on those recommendations most likely to be of concern to our members.

• Defined benefits schemes should be maintained.

• The Government is asked to honour in full the pension promises that have been accrued by scheme members. This includes final salary pensions and existing retirement age up to the point of any change. Future accrual after this date would be under new regulations. Members would, effectively, have two pensions, one based on the current scheme and one under the new scheme.

• Final salary to be replaced by Career Average Revalued Earnings. The exact method for this is yet to be decided.

• All members of a scheme to have the same benefits. Differentiation will be by tiered contributions according to salary. Contributions will rise.

• Greater flexibility over retirement is to be encouraged. More choice over when to take pension (subject to actuarial adjustment) and a lifting of, or significant raising of, the threshold before pension abatement occurs on a subsequent return to work.

• Pensionable age to be adjusted over time in line with state pensions.

• Pension benefits should be raised in line with average earnings during the accrual period for active members and in line with prices for those receiving pensions.

• These changes should be phased over time but within the lifetime of this parliament.

• There is a desire to move towards a standard design and governance for public sector pensions but the Local Government Scheme will remain a funded scheme. Negotiations on implementing change will be scheme by scheme (as we have argued for).

• The Commission does not recommend specific accrual rates, indexation levels or employee contributions but states that these should be considered together (as we have argued for).
• Automatic membership of schemes, with regular automatic re-opting in of those who have opted out, is recommended (already a feature of 2007 teachers Scheme).

• The changes to contracting out of state second pension due in 2012 will mean increased NI contributions for those in public sector defined benefits schemes earning over £40,000 per annum.
•
David Binnie
ASCL Pensions Specialist
10th March 2011