TIME TO FORGE NEW CONSENSUS ON PENSIONS / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( RECOMMENDED READING )

Time to forge new consensus on pensions

By John Hutton

Published: June 27 2010 20:09

There are few more sensitive issues in British politics today than pensions. In an age increasingly characterised by a sense of insecurity about the future, the knowledge that you have made proper financial provision for retirement can provide an enormous measure of comfort and peace of mind.

The Turner Commission report of 2005 helped lay the foundations of a broad cross-party consensus on state and private pensions policy, which addressed the problems of excessive means-testing and inadequate levels of saving.

Consensus should not be a dirty word in politics. When it comes to pensions policy, cross-party consensus is essential, given the need to plan over the longer term. This applies as much to the public sector as it does to the private.

Public sector pensions must be fair and affordable – fair for those in the lowest-paid public services just as it is for the highest-paid public servants. It must be affordable for all those – taxpayers or employees – who have to foot the bill. Given our general economic situation, and with an extremely difficult spending environment over the next decade, it is right that we should carefully consider both of these issues. It is a responsibility we owe to this generation of dedicated public servants as well as the generations to come.

This is why I accepted the government’s invitation to conduct the independent inquiry into the future of public sector pensions. The scope of my inquiry will be wide-ranging. Crucially, it will be completely independent of government. Nothing is being ruled in or out at this stage. Accrued rights must and will be fully honoured. This is not about giving anyone political cover but ensuring that the public servants of today and tomorrow have the cover they need to enjoy security in retirement.

Today I am extending an invitation to all interested groups to submit their views and comments directly to me. I want everyone to have their say. That said, in undertaking my inquiry I must and will have regard to the fiscal challenges that lie ahead for Britain. They are formidable. To ignore them completely would be irresponsible to both taxpayers and public sector workers.

The public sector cannot remain immune from the major demographic and structural changes that have been taking place in our society and economy. These are the changes that have created pressures on pension provision right across the country, both in the private and public sectors.

Very few workers in the private sector are now members of open final salary pension schemes. The financial risks associated with such schemes have simply become too great for most employers to handle.

By contrast, as the public sector has expanded in recent years, more and more workers have become members of its mostly final salary pension schemes. As the National Audit Office found recently, for the four largest unfunded public service schemes the total cost to the taxpayer has increased by 33 per cent in real terms over the past 10 years. As a country, we have no choice but to look at this issue and come to a view about how we can sensibly go forward.

All of the main political parties have recognised this reality. Indeed, the Labour government, in which I was proud to serve, made major changes to public sector pensions that will help save billions of pounds in the years ahead.

We must all now be able to satisfy ourselves that the issues of affordability and sustainability have been fully explored. That is what I intend my inquiry to do.

My inquiry will be bound by one other important consideration – fairness. Workers in the public sector perform functions that are vital to our economy and society. The dinner ladies in our schools, the nurses looking after the sick and dying, and the soldiers fighting for us in Afghanistan, are all right to expect decent pay and pensions. Many of these jobs do not attract high salaries. That is why the retirement needs of those on the lowest levels of the public sector pay ladder will be one of my main concerns.

I will do my best, guided by these principles of affordability, sustainability and fairness, to find the right solutions to the complex issues this inquiry must, rightly, address.

The writer is chairman of the Independent Public Sector Pensions Commission

Copyright The Financial Times Limited 2010.