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Lord Hutton’s Final Report (the “Report”) which sets out his proposals for the reform of public service pension schemes was published on 10 March 2011.
The Report’s aim was to achieve a balanced deal between public service workers and the taxpayer. With this in mind, the Commission recommended a move away from final salary, which is seen as unfairly benefiting high earners, exposing taxpayers to salary risk and creating a barrier to employees switching from the public into the private sector. On balance, the Commission considers that the most suitable option going forward is CARE. (In a CARE scheme, an individual’s pension is based on the amount they earn each year during their career.)
As the actual accrual rates, indexation and contribution rates under a scheme all go to determining its ultimate cost, the Commission left these to the Government to decide. But, it recommended that benefits be uprated in line with average earnings during the accrual phase for active members.
- The public sector’s existing final salary schemes should be replaced with a new CARE scheme for the future.
- Accrued rights in existing schemes should be protected and current members should retain their final salary link for past service.
- NPA should be linked to SPA in most public service schemes, with a new NPA of 60 for the uniformed services (namely, the armed forces, police and firefighters).
- The Government should set a “clear cost ceiling” for public service schemes with “automatic stablilisers” to keep future costs under more effective control.
- The current legal framework for public service pensions should be simplified.