Lord Hutton urges swift pensions deal

The government's controversial reforms to public sector pensions may not be enough to bring costs under control, former work and pensions secretary Lord Hutton has warned.

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.

The comments were welcomed by Deputy Prime Minister Nick Clegg and current Work and Pensions Secretary Iain Duncan Smith, who said the settlement on offer was "very good".

But union leaders insisted Lord Hutton had interpreted the figures wrongly, and public sector workers - who went on strike last week - were being asked to take too much pain.

In an interview with BBC Radio 4's World This Weekend, Lord Hutton insisted pressure on the public finances was 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% 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.

"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 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."

He added "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' Murnaghan programme, Mr Duncan Smith said Lord Hutton had "fully endorsed" the coalition'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."

Mr Clegg said that "as circumstances are tough it's important that we get a good reasonable deal".

"I'm glad he's recognised that what we've put forward is credible and reasonable," he added.

GMB national officer Brian Strutton said: "Lord Hutton's view that the OBR downgrade of short term growth makes a stronger case for reform of public sector pensions is simply not correct. He has failed to take into account the continuing pay caps and 710,000 job losses in the public sector announced by the Chancellor which more than offset the GDP slowdown.

"Therefore over the long term, public sector pension costs will still fall as a proportion of GDP which is the accepted affordability measure.

"However 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."

Meanwhile, it emerged that senior ministers are facing a £4,000 hike in their pension contributions to show they are sharing the pain with the rest of the public sector.

David Cameron has written to his colleagues setting out swingeing rises, arguing that they cannot expect low-paid workers like nurses and dinner ladies to "take on a burden we are not prepared to assume for ourselves".

At 4.2%, the average increase for ministers will be 1% higher than the public sector as a whole. Under the current scheme they can pay in at 11.9% of ministerial salary, receiving a fortieth for each year of service when they reach the retirement age of 65.

Staged rises over the next three years will see Cabinet ministers contributing 17.9% of their £69,000 pay to get the same benefits - some £4,000 more.

Ministers of state will pay an extra 4%, equivalent to £1,320. And junior ministers face 2.5% hikes costing £592.

The Prime Minister himself will be hardest hit with an additional bill of £4,600 per year. Labour leader Ed Miliband will pay an extra 6%.

The MPs also face similar downgrades of their Commons pensions in a review being conducted by the Independent Parliamentary Standards Authority (Ipsa).

Although most ministers are said to be ready to accept the effective pay cuts, they are likely to cause resentment among some who do not have substantial fortunes to rely on.

PA