An independent review of pensions carried out by Labour peer Lord Hutton has concluded that public sector employees should work for longer and contribute more.
The review also concluded that public sector pensions should not be linked to final salaries.
Instead, it proposes that from 2015 onwards they are linked to career-average earnings.
This independent review of public sector pensions follows earlier recommendations that public sector employees should contribute more towards the cost of providing their pension benefits.
The government has already accepted these recommendations.
One of the recommendations made in this new report is that the government should honour pension benefits accrued to date. In practical terms, this is likely to mean that the link to final salary is kept in place for past service for existing scheme members.
The normal pension age for public sector pension schemes should be increased from 60 to 65 for some current employees, according to Lord Hutton. He also recommends that the pension age increases further in the future as the State Pension age increases from 65 to 68.
The proposals from this review have been welcomed as “sensible” by the National Association of Pension Funds (NAPF). They have been immediately criticised by trade unions who have already raised the prospect of industrial action in response.
We believe that the recommendations in this review address some important issues surrounding the cost and value of the benefits arising from public sector pension scheme.
As Financial Planners, part of our role is help people understand their income requirements in retirement and to put in place the most suitable strategies to achieve these income goals.
We welcome any conversations with public sector pension scheme members who need to re-evaluate their retirement planning in light of the conclusions from this review.
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