Budget 2010: Public sector pension costs spiralling

Chancellor George Osborne has confirmed the government will tackle the “spiralling” cost of public sector pensions.

In his Budget speech today, he said the cost of public sector pensions had spiralled - and would cost £10bn a year to support by 2015/16 financial year.

And he said more jobs would be lost if the government did not deal with public sector pay and pensions.

This comes just days after the government established an independent commission to look at ways of reducing the costs of public sector pensions (PP Online, June 21).

On Sunday, chancellor George Osborne said he had appointed Lord John Hutton - the former Labour secretary of state for work and pensions secretary, who was ennobled in the dissolution honours - to lead the commission.

Osborne said the commission would undertake a "fundamental structural review" of public service pension provision in time for the 2011 Budget.

He said it would produce an interim report in September 2010 ahead of the government's spending review.

The commission will make recommendations on how public service pensions can be made sustainable and affordable in the long-term; fair to both the public service workforce and the taxpayer; and ensure that they are consistent with the fiscal challenges ahead.

It will consider issues including the growing disparity between public service and private sector pension provision; the need to ensure that future pension provision is fair across the workforce; how risk should be shared between the taxpayer and employee; and which organisations should have access to public service schemes.

The Commission will also look at wider government policy intended to encourage adequate saving for retirement and longer working lives.

However, Osborne made clear existing accrued pension rights will be protected.

Commenting, Osborne said: "The long-term sustainability and affordability of public sector pensions is crucial for sustainable public finances both in the UK and internationally.

"We must consider options for reform that are fair to the taxpayer and to people who work in the public sector."

Lord Hutton added: "Reform of public sector pensions is a huge challenge for both the public finances and the public sector workforce.

"I welcome the opportunity to lead a root and branch examination of both the short-term and longer-term options for reform to public sector pensions. I am determined that this work should be conducted openly and transparently and that our conclusions will be underpinned with a comprehensive analysis and evidence-base."

The review will cover the following public sector pension scheme:

Principal Civil Service Pension Scheme
Principal Civil Service Pension Scheme (Northern Ireland)
Armed Forces Pension Scheme
NHS Pension Scheme
NHS Superannuation Scheme (Scotland)
Health and Personal Social Services Northern Ireland Superannuation Scheme
Teachers' Pension Scheme (England and Wales)
Scottish Teachers' Superannuation Scheme
Northern Ireland Teachers' Superannuation Scheme
Local Government Pension Scheme (England and Wales)
Local Government Pension Scheme (Scotland)
Northern Ireland Local Government Pension Scheme
Police Pension Scheme (administered locally)
Firefighters' Pension Scheme (administered locally)
United Kingdom Atomic Energy Authority Pension Schemes
Judicial Pensions Scheme
Department for international Development - Overseas Superannuation Scheme
Research Councils' Pension Schemes

In addition to the schemes mentioned above, a number of smaller schemes - and many established to cover only one senior appointment - which do not specifically need to form part of the review but which will be required to act on the recommendations.