Public sector pension age to rise to 66

The Government has confirmed it is to adopt a number of Hutton's pension suggestions. And the unions aren't happy.

Danny Alexander, the chief secretary to the Treasury, has confirmed that the retirement age for public sector workers will increase to 66.

This is in line with the planned increase in the state retirement age, and is just one of a number of the recommendations made by Lord Hutton earlier this year which the Government will be adopting.

Working longer, for worse pensions!

Lord Hutton, a former pensions minister under the Labour Government, published his report back in March, which contained a number of controversial suggestions to help alleviate the current pensions crisis which the Government faces.

Here were the main suggestions Hutton came up with:

Existing final salary schemes should be replaced by new schemes where the pension entitlement is linked to career average earnings.
Linking normal pension age in public service pension schemes to the State Pension age.
Members of the ‘uniformed services’ (armed forces, police, firefighters) currently have a normal pension age of less than 60. This should be raised to 60.
Public service pension schemes should have a ‘clear cost ceiling’ – the proportion of pensionable pay that taxpayers will contribute to employees’ pensions.
Introducing more independent oversight and stronger governance of pension schemes.
Overhauling legal framework to make pensions simpler.

And while many industry experts supported those suggestions, unions representing public sector employees were predictably outraged.

Unjustifiable

In a speech inevitably leaked long before it was due to be given, Alexander said it was “unjustifiable” to expect private sector workers to work longer and pay more, so that public sector workers could enjoy an earlier retirement, on decent pensions.

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And while you won’t find too many private sector workers who would disagree with that assertion, the timing of the speech is interesting, given negotiations are still ongoing between the Government and the unions. The unions accused Alexander of a ‘breach of trust’ by going public with details before they had been put to the unions.

Let’s take a look at some of those details which Alexander has announced.

A jump from 60 to 66

The headline change will be linking the retirement age of public sector workers to that of private sector workers. Currently, public sector workers get to retire at 60, while private sector workers are set to see their retirement age move to 66 by 2020. So public sector workers should prepare for a pretty hefty jump in the time they will need to work before collecting their pensions.

Another big change will be the increase in contribution levels. I outlined current contribution levels in the Public sector to work longer for worse pensions, but the Government wants to see the average public sector employee hand over around 3.2% extra by 2014.

Of course, exactly how much extra you’ll need to pay will vary depending on your salary. Those at the top end of the scale will need to pay as much as 5% more than they currently do, a significant increase, while those on the most modest wages will be unaffected.

A question of fairness

That last point is an important one. Whenever discussions of public sector workers and their ‘perks’ come up, there is all too often a focus on those employees at the top end of the scale, enjoying very healthy salaries and pensions to boot.

However, as you can see, there are around 1.25m workers on very modest salaries of less than £18,000 and it would be wrong to assume that the pensions they eventually enjoy will allow them to live a life of luxury in retirement.

A striking change

The next stage will almost certainly be striking action by the members of various public sector unions. For example, the National Union of Teachers has already voted overwhelmingly in favour of industrial action, with a strike scheduled for 30 June. A whopping 92% of members voted to strike.

This will not be the last strike we see. Indeed, with the changes likely to be implemented relatively slowly, there is a decent chance that we will see protracted strike action for years to come.

Get planning!

So whether you are a public sector or private sector worker, it is clear that relying on the state or anyone else to pay for your retirement is an unwise course of action – it’s down to you to follow the example of the Malaysians and take responsibility for your own retirement planning.

Just how much you need to retire in comfort is up for debate, something we looked at in It doesn't cost much to retire well. That said, too many of us miss out on the pension income we should be enjoying – to find out more, check out The £3.2bn pension boost.

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