Pension deal urgent, says Hutton

4 December 2011 Last updated at 08:00 ET

 

Lord Hutton is often cited by ministers in support of their controversial pension reforms

The downgrading of Britain's growth forecasts has made the case for public sector pensions reform more urgent, Labour peer Lord Hutton has said.

The former minister, who conducted the coalition's review on pensions, said change was now the "order of the day".

He also told the BBC the government's offer was a "perfectly credible" one.

But unions, who say two million workers went on strike over the issue last week, argue their members will have to work longer and pay more, but get less.

The government wants public sector workers to pay more towards their pension schemes, retire later and accept a pension based on a "career average" salary, rather than the current arrangement based on their final salary.

On average workers face a 3.2% rise in their contributions.

The recommendations from Lord Hutton's independent review are at the heart of these proposals.

The former pensions minister told BBC Radio 4's The World This Weekend that his original assessments about the sustainability of future pension arrangements had been too optimistic.

'Heading for rocks'

He said the savings from an overhauled system should be brought forward as quickly as possible.

He was speaking days after the Office for Budget Responsibility said it now expects growth of 0.9% this year, down from the 1.7% predicted in March.

The prediction for next year has fallen to 0.7% from 2.5% predicted in March.

"Growth is slower. We know that by 2016 on the latest projections the economy is going to be about 3.5% smaller than we thought it would be," Lord Hutton said.

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

"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.

"The events of the last couple of weeks have confirmed that change is going to be the order of the day now, if we're going to remain competitive, successful as an economy... we could be heading for the rocks unless we make adjustments now."

He said the government's offer would give "significant protection" to workers close to retirement as well as "very generous accrual rates".

But he also said the unions had raised some genuine concerns, and he agreed with warnings that current plans could force large numbers of people on low or moderate incomes to opt out of their pensions altogether.

"I think there is a genuine issue between the unions and ministers about the pension contributions, which I hope is the subject of further discussion," he said.

'No concessions'

"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."

He added: "I hope ministers can look again at some aspects of the way they're planning to increase pensions contributions."

For Labour, shadow home secretary Yvette Cooper said the government was going further than Lord Hutton's recommendations and had effectively introduced a "3% surcharge" on workers' contributions.

"That is not something that was in Lord Hutton's report," she told the BBC's Andrew Marr show.

Brian Strutton, from the GMB union, said Lord Hutton had not taken into account that caps on pay rises and job losses in the public sector meant the cost of pensions as a share of overall GDP would still fall despite the drop in economic output.

He added: "It is good that Lord Hutton has belatedly agreed with unions that the government's 50% contribution increase on public sector workers is too much and will drive people out of pension saving.

"In all the months of talks, the government has made no concessions on this point which is necessary if substantive progress is to be made in the ongoing talks."

MPs' pensions

Meanwhile, ministers themselves face a £4,000 rise in their pension contributions in a move aimed at showing they share the financial burden felt elsewhere in the public sector.

Prime Minister David Cameron has written to colleagues, the Mail on Sunday reported, to say they cannot expect low-paid workers like nurses and dinner ladies to "take on a burden we are not prepared to assume for ourselves".

Rises planned over the next three years would see Cabinet ministers contributing 17.9% of their £69,000 salaries to get the same benefits - equivalent to an extra £4,000.