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For Hutton review to deliver real taxpayer value will require a dramatic improvement in communication to public sector employees of the value of their pensions, says CIPD.

 

Lord Hutton has delivered a comprehensive, considered and welcome report on public sector pensions. But, according to the Chartered Institute of Personnel and Development (CIPD), in defining so clearly the primary role of public sector pensions as to ‘ensure adequate levels of retirement income for public service pensioners’, there is a danger that he is underplaying the important role that effective employee communication about the value of their pensions can play in delivering high quality public services.

The Hutton review reveals clearly the complex nature and variety of pension provision across the different parts of the public sector. However, as we argued in our paper, Transforming public sector pay and pensions, there are some cost saving measures that can be applied across the various parts of the public sector.

One measure is to set a pension age at the same level as the state pension age, as is already the case in local government, and we are glad to see that Lord Hutton is proposing this option.

Another way to reduce cost would be to move the future basis of public sector pension accrual from a final salary to career average basis, as is already the case in the civil service, and we support Lord Hutton’s recommendation that this happen.

Charles Cotton, CIPD performance and reward advisor, says:
“No matter how much more affordable new public sector pension arrangements are made, if employees don’t value and appreciate the employer investment then the money is simply being wasted. We understand Lord Hutton’s recommendation that the primary purpose of public service pensions should be to ensure adequate levels of retirement income for public service pensioners. However, we feel there is a danger he is too readily dismissing the role good pensions play in supporting the delivery of high quality public services.

“There needs to be greater recognition on the part of employers and unions of the scale of the challenge in communicating to public sector workers the value of the new pension arrangements. Employees are being asked to contribute, on average, 3% more for less at a time of pay freezes, increased living costs and when their benefits will be uprated by CPI rather than RPI – but this does not take away from the valuable nature of public sector pensions.

“Public sector pensions, even after these reforms are implemented, will remain generous and cost-effective for public sector workers. Communicating this fact will play an important part in limiting the risk of industrial action in the short-term. However, there is a more important long-term gain in ensuring public sector workers are clear of the immense value of their pension provision, and the contribution that their employers make to it*.

“We welcome Lord Hutton’s thorough and considered report. The challenge for government now is to ensure that the large cost of these pensions, even after the Hutton reforms are implemented, delivers value for money for the taxpayer. Meeting this challenge depends on their value to public sector workers being appreciated. Without this, they can’t effectively drive recruitment, retention and motivation of high performing employees, dedicated to consistent delivery and continuous improvement of high quality public services.”

* Our CIPD Employee Outlook: Focus on Pensions report shows 33% of all employees are unaware of the level of contribution that employers make to their pensions, but this proportion rises to 59% of public sector workers, compared to 18% in the private sector.

• View CIPD Employee Outlook: Focus on Pensions
• Download Transforming public sector pay and pensions