- Bob Crow: 'This lights the blue touch paper for strikes by millions'
- Teachers could take industrial action as early as this summer
- Overhaul will see pension payments linked to state pension age
- Pension payouts based on average earnings, not final salary
- Army, police and firemen will have to work until they are 60
Radical: Former Labour Cabinet minister John Hutton has outlined major pension reforms
Strikes by public sector workers could hit the Royal Wedding after explosive pension reforms which will mean having to work for more than a decade longer and smaller payouts infuriated union chiefs.
Militant leaders have already warned that walkouts could affect the wedding of Prince William to Kate Middleton on April 29 and today's recommendations by Lord Hutton serve to have increased the chance of industrial action.
In a bid to save billions of pounds, a major Government report has set the stage for early retirement for state workers to become a thing of the past.
Under the plans, the usual retirement age of 60 would be hiked to that of private sector workers - currently 65 and due to rise to 68.
And the Armed Forces, policemen and firefighters, who can currently claim full pensions at 50, would have to wait another 10 years before they are eligible.
The recommendations by former Labour Cabinet minister Lord Hutton put the coalition on a collision course with the unions, who declared they had 'lit the blue touch paper' for industrial action.
He also recommended that public sector staff, who include NHS workers, teachers and police, should no longer have pensions based on their final salary.
The schemes would be swapped for a sum calculated on the average salary earned throughout their career.
The dramatic move is part of a broader shake-up of state employees’ retirement funds, which have created a £1trillion black hole in the public finances.
The report says reformed pension schemes should be introduced by the end of this Parliament, in 2015, while allowing a longer transition for groups such as the Armed Forces and police.
Chancellor George Osborne is also due to announce a large increase in pension contributions - around 3 per cent more of annual salary.
That will be an effective pay cut running into thousands of pounds for many public sector staff.
The report recommends linking the pension age - currently 60 for most state employees - with the state pension age.
It is due to rise to 68 over the years ahead, threatening the retirement plans of millions of public employees, who will also have to contribute more to their ‘gold-plated’ pension funds.
And experts forecast the state pension age will continue to rise, eventually hitting 70 as Britain struggles to meet the cost of its ageing population.
The biggest losers will be those who work their way up from the bottom, because of the decision to scrap the final salary link, which will be replaced with a ‘career average’ deal.
For an NHS worker who starts on a salary of £20,000 but rises to become a consultant on £150,000, it will be a crippling blow to their retirement income.
For a colleague who started on £20,000 and retires on £40,000, the switch to career average will make almost no difference.
Unions representing council workers, NHS staff, civil servants and other public sector employees reacted with fury and warned of co-ordinated industrial action.
Dave Prentis, general secretary of Unison, branded the proposals a 'pensions raid' which would leave workers worse off.
He called on the Government to convene urgent talks to discuss the report, rather than 'rushing' to make cuts and face industrial action.
He said: 'This will be just one more attack on innocent public sector workers who are being expected to pay the price of the deficit, while the bankers who caused it continue to enjoy bumper pay and bonuses.
'On top of a pay freeze, and the threat of redundancy, they now face a pensions raid. This brings the threat of industrial action closer.'
YOUR QUESTIONS ANSWERED
WHAT'S THE PROBLEM WITH PUBLIC SECTOR PENSIONS?
One in five workers in Britain is employed by the State, and the vast majority have a generous gold-plated pension. Although they pay into their pension, taxpayers pick up most of the bill. Pensions to retired State workers cost £32billion in 2008/09, and the figure is predicted to keep on rising to £79billion in 2059/60.The total future liability, or 'black hole', is £770billion, although some estimates put the true figure at £1trillion.
WHY ARE THEY SO EXPENSIVE?
They are final salary pension schemes, which means the Government promises to pay a percentage of an employee's final salary when they retire. At present, workers contribute varying amounts of their salary. Members of the Armed Forces pay nothing while the police contribute 9.5 per cent, but this does not even begin to cover the total amount they receive. Lord Hutton’s report calls for these contributions to rise.
WHY WAS THIS REPORT COMMISSIONED?
In June last year, Chancellor George Osborne asked former Labour Cabinet minister John Hutton to investigate the affordability of public sector pensions. A key area is how to shift some of the burden away from the taxpayer.
WHEN ARE PUBLIC SECTOR WORKERS ALLOWED TO RETIRE?
At the moment, it ranges from 55 for the Armed Forces to 65 for teachers, but many long-serving state workers can still retire in their late 50s or at 60. Lord Hutton has suggested this should rise to be in line with the state pension age. This is due to rise to 68 in the coming years.
WHO WILL THE CHANGES AFFECT?
Almost all public sector workers, including teachers, doctors, nurses, civil servants, and firefighters. They will pay more into their pension schemes to lift the burden from the general taxpayer. The upshot is that state workers face a de facto pay cut within months. Their overall benefits won't change - it's just that more of it will be deferred until retirement. People in the armed forces may not have contributions raised, or not as soon.
Police, who can currently start claiming their pension at 50, will have to wait until they are 60 to qualify
IS IT THE END OF FINAL SALARY PENSIONS?
That's the idea. Hutton has announced no overall single scheme to ween everyone onto, but pensions will be fairer if everyone's payments are based on career average earnings. This is because some professionals - doctors, civil servants - often see salaries massively ramped up towards the end of their careers, skewing their pension payback compared to others who have made equal overall contributions.
DOES ANYONE LOSE BIG?
Measures are expected to shield lower-paid staff. The highest-paid public sector employees are likely to have to pay far more into their pensions as a result - around 5 per cent of earnings. But the biggest losers will be those who work their way up from the bottom, because of the decision to scrap the final salary link, which will be replaced with a 'career average' deal. For an NHS worker who starts on a salary of £20,000 but rises to become a consultant on £150,000, it will be a crippling blow to their retirement income. For a colleague, who started on £20,000 and retires on £40,000, the switch to career average will make almost no difference
WHEN WILL THE CHANGES BEGIN?
By the end of this Parliament in 2015. The switch could take longer for some schemes, such as the police and armed forces pension schemes.
WHAT IF YOU'VE BEEN ON A FINAL SALARY SCHEME?
When the reforms arrive in 2015, all benefits accumulated by state workers in the existing final salary schemes will be ring-fenced. But future benefits earned between 2015 and retirement age will be accrued in the new 'career average' plan. On retirement, the pension rights from both schemes will be added together and a combined pension calculated.
WILL I WORK LONGER?
Public sector workers will retire at 66 (men and women) by 2020, apart from members of the armed forces, police and firefighters, who should have their retirement age raised from 55 to 60.
WILL WE HAVE ANY SAY IN HOW THE FUTURE SCHEME WORKS?
Workers and their representatives should be involved in a consultation process on the design of the new schemes.
Measures are expected to shield lower-paid staff from the pain of the reforms, given the Coalition’s pledge not to balance the books on the backs of the worst-off.
The highest-paid public sector employees are likely to have to pay far more into their pensions as a result - around 5 per cent of their earnings.
Lord Hutton’s report also recommends the introduction of a ‘cost ceiling’ for public service pension schemes to prevent future costs ballooning out of control.
When the reforms arrive in 2015, all benefits accumulated by state workers in the existing final salary schemes will be ring-fenced.
But future benefits earned between 2015 and retirement age will be accrued in the new ‘career average’ plan.
On retirement, the pension rights from both schemes will be added together and a combined pension calculated.
No details have yet emerged about how quickly the later retirement age would be imposed but it is likely to be phased in, rather than introduced overnight.
Militant RMT boss Bob Crow warned the report could 'light the blue touch paper' for strikes while Dave Prentis, general secretary of Unison, branded the proposals a 'pensions raid' which would leave workers worse off.
Lord Hutton said he wanted to make the system fairer and more sustainable, warning that longer life expectancy meant the current approach was far too costly.
'If we go on as we are, we are heading for the rocks. The solution is not a race to the bottom, nor to hack away at public sector pensions,' he said.
Working for longer was an 'inescapable reality', the peer insisted, adding that his measures were aiming at a 'balanced deal' between workers and taxpayers.
'The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform,' he said.
'Public sector pensions were diamond-encrusted but they are still gold-plated.'
Pensions expert Dr Ros Altmann
But unions warned strike action is inevitable as a result of the ‘attack’ on their pensions.
Any strike action is likely to attract little sympathy from a private sector workforce who typically do not get a pension from their boss.
Rail Maritime and Transport union leader Bob Crow said the report will be 'the spark that lights the blue touch paper of co-ordinated strike action'.
He said: 'It is crystal clear from the Hutton Review that, from nurses to transport staff, the Government intend to make staff work longer, pay more and get less.
'There is no question that this is the issue where co-ordinated strike action is on the cards as we fight to stop the ConDem pensions robbery.'
Jon Skewes of the Royal College of Midwives said members would be 'appalled'.
'On top of pay freezes, cuts to services and threats to the NHS itself, this will be seen as a slap in the face for hard-pressed midwives and maternity support workers,' he warned.
'They will react with anger and dismay and many may vote with their feet and leave the NHS.'
Mark Serwotka, the general secretary of the Public and Commercial Services union, warned: ‘We are already considering a strike ballot and talking to other unions about co-ordinating any action.’
The Association of Teachers and Lecturers warned its members could walk out as soon as this summer, leaving England's schools facing mass disruption.
General Secretary Mary Bousted said: 'We will be moving quickly if we decide to take action, it will be this year. It is perfectly possible that it could take place before the summer holidays.'
HOW DOES BRITAIN COMPARE?
FRANCE: Retirement age is typically 60 although plans are afoot to bring them in line with private sector. Also plans to raise retirement threshold to 62.
GREECE: Retirement age hiked to 65 from 60. Minimum length of contributions to get full benefit of 37 years, rising to 40 in 2015.
NETHERLANDS: Similar schemes for public and private sector, with defined benefits. Typically contribute 1.75-2 per cent of earnings a year.
SWEDEN: Pension payouts based on career earnings not final salary. Automatic link between benefits and life expectancy.
CHILE: Compulsory defined contribution schemes for public and private sector. Pay 10 per cent of earnings. Top-ups for poorest 60 per cent of pensioners.
Experts, however, said Lord Hutton’s proposals are not nearly as painful as they could have been, with state workers still enjoying better pensions than many of their private sector counterparts.
Six million state employees enjoy generous pension schemes that are now largely a thing of the past in the private sector.
The longest-serving enjoy a guaranteed pension, index-linked for life, based on two-thirds of the salary they earn on the day they retire. Most can also expect to retire at 60, or even earlier, though for the last few years new entrants have been told they are expected to work till they are 65.
Dr Ros Altmann, a former Treasury pensions adviser who is now director general of Saga, said: ‘Public sector pensions were diamond-encrusted, but they are still gold-plated.’
The average pension enjoyed by a state worker is around £7,800. Around 85 per cent of public service employees have some form of employer-sponsored pension provision, compared with around 35 per cent in the private sector.
No comments:
Post a Comment