John Hutton, the renegade former Labour cabinet minister who is doing the Tories’ dirty work on pensions, will publish his final report this Thursday, 10 March.
It will propose further worsening of public sector pensions on top of the two big attacks which the Government has already put into train.
Hutton’s report should be a last-minute alarm signal to the unions to start fighting on pensions. Almost a year has passed now since the Government finalised its first decisions, and still the union leaders are saying “we’ll have to seek negotiations, and if that doesn’t work, then think about action”.
There have been no negotiations on anything but the fine detail of one aspect, and there won’t be any until the unions decide on action!
From next month, April 2011, the yearly inflation-upgrading of public-sector and state pensions will be according to the CPI index and not the RPI. This means that the inflation-upgrading of your pension is, on average, about 0.8% less each year. After 25 years’ retirement, your pension is cut by about 19%.
From April 2012, the Government will be demanding an extra 3% of your pay in pension contributions. The extra payment brings no improvement in pensions, in fact a worsening. In effect this is a 3% pay cut. The Government is negotiating only about the detail of how the total 3% will be spread over the workforce: will Jack pay 4% extra, and Jill 2%, or Jack 2% extra and Jill 4%?
As far as the Government is concerned, those attacks were set in stone almost a year ago. The union leaders’ whining about seeking negotiations must sound to the Government like a prisoner being led to the scaffold after trial who is still asking to have a discussion about what witnesses to call.
If the unions continue in the same way, then the Government is bound to feel confident about pushing ahead on Hutton’s additional proposals, which, according to advance announcements, are:
• No NHS staff, civil servant, or teacher should get their full pension until 65 (or, as time goes on, even older). In 2005 the unions did a deal with the Labour government which kept a pension age of 60 for existing staff while making it 65 for new recruits. Now, predictably, the government will try to increase the pension age to 65 (or more) for everyone.
• Pension schemes should be moved from being pegged to “final salary” to being pegged to “career average” (as, for example, pensions for recent-years recruits to the civil service already are).
In principle there are good arguments for this: the “final salary” pegging means that managerial grades, who can expect to get several promotions over their lifetime and end up on high pay just before they retire, get much better pensions than routine-grade workers who get few promotions.
However, the detail is decisive. “Career average” is a complex thing. Everything depends on how the “accruals” are worked out. Given the nature of the government making the change, we can be sure that the method of calculation proposed will be one that cuts pensions overall.
Hutton is reported to have rejected the idea of a “cap” on very high pensions, but possibly the Government will go for that anyway, for demagogic reasons.