Radical changes announced to the public sector

Labour peer Lord Hutton has recommended to ministers that public sector workers should no longer have final salary pensions. Instead they should have schemes linked to average earnings, while paying more and working longer.

From 2015, most of the six million state employees will be expected to retire at the state pension age, which is due to rise to 66 by 2020. Armed Forces personnel, firemen and police officers, who can currently retire in their 50s or even younger, would have to wait until they reach 60 to receive a pension.

Lord Hutton was asked to draw up plans for the future of public sector pensions, which have become increasingly unaffordable as life expectancy rises. This would mean the end of final salary schemes, which have largely disappeared in the private sector. However, rather than replacing them with the defined benefit schemes common in the wider pensions industry, he has recommended that the relatively liberal career average earnings system be adopted.

Lord Hutton says that, while the special status of these workers should be respected, it is no longer acceptable for pensions to be paid in early middle age. In future, the uniformed services should not be able to retire before their 60th birthday. He also says that it should be possible to introduce the new pension ages by the end of the current Parliament, in 2015.