The Institute of Economic Affairs initiated the debate on public sector pensions five years ago and has played a key role in changing the climate of opinion on this issue. We are therefore pleased that the government is finally acting. The Hutton Report is an important step in the right direction. However, we still have major reservations about the recommendations:
1. It is not clear that the career average scheme proposed by Lord Hutton will significantly reduce costs, though it will control the risks of these schemes more effectively.
2. The whole approach involves still-further centralisation of the terms and conditions of employment of public sector workers when the government should be moving decisively in the opposite direction. Hutton recommends that the whole public sector uses the same framework pension scheme. Instead, individual schools, hospitals and other public sector employers should determine their own terms and conditions of employment according to local needs. This does not prevent them using a framework public sector pension scheme if they wish, but public sector pension reforms must run with the grain of decentralisation and localisation.
3. Without proper and transparent accounting for public sector pensions it will be impossible to ensure that current employers and employees pay for the pension they accrue - something that both inter-generational justice and economic efficiency demands. This issue has been referred to the Treas