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Independent Public Service Pensions Commission Report
Posted on 07/10/2010
Dear Colleagues,
This morning the Independent Public Service Pensions Commission led by Lord Hutton has published its interim report. This report can be found here
We are informed by the Home Office that the Government will give careful consideration to Lord Hutton’s recommendations before responding to the report. However, on initial reading of the 176-page report, the emerging theme is that “if the Government wishes to make short-term savings, then raising contribution rates would be the most effective way”, as opposed to reducing the level of benefits. The Commission also recommends that, in doing so the Government “should have regard to protecting the low paid and should not introduce contribution rates for the Armed Forces at this time.”
Aside from this, the recommendations are not scheme-specific and there is no suggestion as to how far contribution rates should rise. This means that there is no definite indication as to the implications, if any, for police pensions. In its report, the Commission concludes that the cost of funding public sector schemes has risen, within an increasing burden being shouldered by the tax-payer. According to the Commission, in many public sector pension schemes, at the time when they were initially established employees paid approximately half of the cost of funding those schemes, while today they pay somewhere between a fifth and a third of the cost of accrual. Although the Commission does not make this explicit, members of police pension schemes are at the top end of this range. The report also notes the relatively high contribution rate of police officers. While drawing no conclusions from this, it is also worth noting that the report contains far more analysis of the Local Government and NHS Pension Schemes.
The Government will now consider Lord Hutton’s recommendations before deciding on whether or not to accept this recommendation. Our understanding is that it is then for each scheme funder to consider the how they will take these recommendations forward, if accepted by Government. In the case of policing this would have to go through the Police Negotiating Board. However, you will also be aware that the Home Secretary has appointed Tom Winsor to undertake an independent review of police pay and conditions and it is possible that the recommendations of Lord Hutton may be explored within that separate review. We also still await the outcome of the Government Actuaries Department valuation of the Police Pension Scheme that is to take effect from April 2011.
Lord Hutton will also produce a final report in time for the Budget in 2011, which will look at longer-term structural reform of public sector pensions. This may include whether or not it is appropriate for schemes to move from a final salary basis to that of a career average. It will also look at whether there needs to be changes to retirement ages within each scheme.
I will keep you informed of further developments.
Regards,
Ian Rennie
