No one is going to like being told to work longer for a lower pension. But that is what teachers, nurses and other public sector workers will have to do under the terms of the independent review of pensions by Lord Hutton. Their unions have reacted with indignation, protesting that millions of innocent public servants will be picking up the bill for a financial crisis caused by bankers who continue to enjoy bumper bonuses.
It is unfortunate that Britain's pensions crisis is being addressed after a recession and the banking crisis that caused it. But pensions are a far deeper problem, rooted in the hard demographic fact that we are all living longer. In 1970 the average man lived 10 years in retirement; today the average is double that. How are we going to pay for our pensions over those extra years? The old way – paying out of taxes on the working population – can no longer cope.
Lord Hutton had to address two key issues: affordability and fairness. He has produced a realistic and fair-minded report. Younger public servants will have to retire at 65 not 60. Pensions will be based on average earnings over a whole career, rather than on final salary. Pensions will be lower, but still guaranteed. They will be fairer, because top-earners will no longer be advantaged at the expense of ordinary pensioners. The report has exploded the myth that public sector pensions are "gold-plated"; the average is about £7,800 a year. But it has also shattered the idea that public sector workers are paid significantly less than those in the private sector – and therefore deserve better pensions to offset poorer pay. There is no evidence for that.
There will be details to sort out. Lord Hutton's notion of a 59-year-old firefighter is problematic. And it is important that the Coalition government does not cherry-pick those Hutton recommendations which suit its cost-cutting agenda and ignore the costlier measures which give the report its balance. Pension reform is a long-term issue, and should not be used by the government to tackle the short-term deficit. But public sector workers should reflect that the changes will leave them with considerably more generous pensions than those in the private sector can hope to achieve.Reuse content