Reform of public sector pensions may not be enough says Hutton

The Labour peer, who conducted a review of the system for the coalition, said his findings looked “too optimistic” after UK growth forecasts were drastically downgraded.

He described the Government’s proposals for increasing contribution rates and pushing back retirement ages as “credible”, and urged Ministers and unions to thrash out details quickly.

Hundreds of thousands of public sector workers staged a strike last Wednesday in protest at the changes.

But in an interview with BBC Radio 4’s World This Weekend, Lord Hutton insisted the problems were even greater following dire economic predictions by the Office for Budget Responsibility (OBR).

“What we’ve seen is how very quickly the assumptions which underpinned my assessments of the long-term sustainability of public service pensions have been shown to be too optimistic,” the peer said.

“Growth is slower, we know that by 2016 on the latest projections the economy is going to be about 3.5 per cent smaller than we thought it would be.

“That is going to affect the sustainability of public sector pensions in a negative way.”

He added: “The ground underneath those estimates has changed radically and I’m afraid in the wrong direction so we cannot be sure that the costs will fall over time and that we get to a more sustainable balance.”

Lord Hutton said change was the “order of the day” if UK plc was to remain competitive.

“We could be heading for the rocks unless we make adjustments now,” he said.

“What the Government have tabled is a perfectly credible offer. I think it gives significant protection to those close to retirement and very generous accrual rates.

“What has happened in the last few months confirms the very important point that we can’t be sure that over 50 years we will get to a better balance. So let’s bring those savings forward as quickly as we can.”

Lord Hutton said there had to be scope for “further negotiation and discussion” with specific issues raised by unions “because I don’t think you can build long-term reform on forcing people out of saving for pensions, that is a crazy way to do it.

“I think the danger with the proposals is that a lot of people on low to moderate incomes – Ministers will say those on under £15,000 don’t pay anything and there are graduated increases between £15,000 and £21,000 – but in the current climate that might be enough to persuade large numbers to opt out.

“I really hope that doesn’t happen because I don’t think it’s a good policy to pursue to get people to opt out of pension saving.”

He went on: “The unions have raised some genuine concerns and I hope Ministers can look again at some aspects of the way they are planning to increase pensions contributions.”

Speaking on Sky News’s Murnaghan programme, Work and Pensions Secretary Iain Duncan Smith said Lord Hutton had fully endorsed the Government’s pensions offer.

“The fact is there just isn’t the kind of money that they think there is to pay the pensions,” he said.

“I think the settlement on the pensions is actually very good for them (public sector workers) in the sense that those on very low pay won’t actually have to pay any increases, and those 10 years from retirement will actually not have to see any changes.”

He added: “In truth this is a pretty generous package.”

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