The spending review will hit the poorest pensioned hardest. The freezing of pension credits and the raising of the State Pension Retirement Age are non-progressive measures. Women who are generally less well pensioned will suffer from the raising of the SRA twice . Many of the 490,000 public sector workers losing their jobs are destined for private sector pension accrual or no pension accrual. For those close, at ,or in retirement without adequate pensions, the impact of the spending cuts will be particularly bad news.
The public sector consultation on the public sector pension discount rate can only be seen as an attempt to engage the nation in an argument that has been raging amongst pension people for most of this year (see blogs passim).
As a friend in Government put it earlier this week
The point as ever is that the rate depends what you are trying to do with/decide with the answer
Public sector pensions currently act as a cushion for many of those in society least able to generate the wealth to provide for themselves in retirement.
It is quite obvious that the Government’s answer is to abolish or diminish what has elsewhere been described as “the pensions apartheid” that exists between mainstream private and public sector accrual. The comments on Final Salary provision in Osborne’s statements echo statements made earlier in the month by Lord Hutton. A move to a CARE approach ( rather than a notional or funded money purchase alternative), may keep membership affordable to those in the public sector with low disposable incomes and provide them with a certainty of benefits similar to what they’ve previously enjoyed.
Both for reasons of overall or personal affordability, it seems that the days of final salary related public sector pension accrual are numbered. Faced with the choice of redundancy, lower salary or higher pension contributions, I think it likely that the consensus solution will be for a career-average pension solution within the public sector and while this will diminish public sector pension it will be less harmful to the low-paid.
There is no mention in the Government’s statement yesterday of an uplifting of the basic state pension but there is reference to NEST, which appears to have survived as the big new idea. We have only to look at the social outcomes of the 401k system to see what an underfunded DC system offers the poorest members of society (if not supplemented with a proper state pension).
There is no comfort in this budget for the mature and under pensioned. They will not benefit from the increase in expenditure on education, will suffer from the cut in the social housing budget and will particularly suffer from the cuts in Local Government grants since the poor are most reliant on Local Government services.
- Pensioners: Your guide to the spending review (confused.com)
- Lord Hutton’s public sector pension reform is long overdue (telegraph.co.uk)
- Pensions not only option for retirement, Lord Hutton warns (telegraph.co.uk)
- Lord Hutton: ‘fundamentally unfair’ final salary pensions must end in public sector (telegraph.co.uk)
- Lord Hutton pensions report: how will it affect me? (guardian.co.uk)