Hutton Report: Final salary public sector pensions to end by 2015

Final salary public sector pensions will be phased out in favour of cheaper career average schemes by 2015.

The Independent Public Serice Pension Commission Report, published today, says public sector workers will be protected by the career average model, which it proposes can be rolled out by the end of this Parliament.

The report also proposes the government setting a cap on the proportion of pensionable pay it will contribute to employee pensions. Exceeding the cap should trigger a consultation process.

Current workers within public sector pensions will keep the final salary link on their past earnings.

Lord Hutton (pictured) says: "It is wrong to say public service pensions are gold-plated. The average pension paid to pensioner members is about £7,800 a year.

"About half of pensioners receive less than £5,600 a year and 90% of pensioners receive less than £17,000 a year.  Although these figures are partly accounted for by part-time or part-career working these pensions provide a modest level of retirement income.

"I also reject the argument the downward drift of pensions in the private sector is justification that pensions in the public sector must follow the same course."

It goes on to recommend a career average model, which it says will not unfairly benefit high-earners, keep salary risk on members, and be more flexible to respond to changes in longevity.

The normal pension age of public sector schemes should be raised to be brought in line with the state pension age, the report says.

Joanne Segars, chief executive of the National Association of Pension Funds, says: "Lord Hutton's findings strike the right balance between fairness and cost, and have avoided a race to the bottom.

"Public sector workers will still retire with a good pension, and it is important that they can bank what they've already built up.

"It is an ambitious timetable to implement this by 2015, but it is important to crack on with these reforms."

Trades Union Congress general secretary Brendan Barber warns the lowest paid civil servants will drop out of public sector pension schemes.

He says: "The recommendations come at a time when the government has already signalled its intention to ask public service workers to stump up an extra £2.8bn a year in pensions contributions.

"The pension schemes are already sustainable and their cost as a proportion of GDP is set to fall over time."