Pension reforms 'may not control costs', warns Lord Hutton

Hundreds of thousands of public sector workers staged a strike last Wednesday in protest at the pension changes (SUSANNAH IRELAND)

The Government's controversial reforms to public sector pensions may not be enough to bring costs under control, former work and pensions secretary Lord Hutton has warned.

The Labour peer, who conducted a review of the system for the coalition, said his findings looked "too optimistic" after UK growth forecasts were drastically downgraded.

He described the Government's proposals for increasing contribution rates and pushing back retirement ages as "credible", and urged ministers and unions to thrash out details quickly.

Hundreds of thousands of public sector workers - including teachers, nurses and civil servants - staged a strike last Wednesday in protest at the changes.

But in an interview with BBC Radio 4's World This Weekend, Lord Hutton insisted the problems were even greater following dire economic predictions by the Office for Budget Responsibility (OBR).

"What we've seen is how very quickly the assumptions which underpinned my assessments of the long-term sustainability of public service pensions have been shown to be too optimistic," the peer said.

"Growth is slower, we know that by 2016 on the latest projections the economy is going to be about 3.5% smaller than we thought it would be.

"That is going to affect the sustainability of public sector pensions in a negative way."

He added: "The ground underneath those estimates has changed radically and I'm afraid in the wrong direction so we cannot be sure that the costs will fall over time and that we get to a more sustainable balance."

Lord Hutton said change was the "order of the day" if UK plc was to remain competitive.

"We could be heading for the rocks unless we make adjustments now," he said.

"What the Government have tabled is a perfectly credible offer. I think it gives significant protection to those close to retirement and very generous accrual rates.

"What has happened in the last few months confirms the very important point that we can't be sure that over 50 years we will get to a better balance. So let's bring those savings forward as quickly as we can."

Lord Hutton said there had to be scope for "further negotiation and discussion" with specific issues raised by unions.

"I think there is a genuine issue between the unions and ministers about the pension contributions which I hope is the subject of further discussion because I don't think you can build long-term reform on forcing people out of saving for pensions, that is a crazy way to do it.

"I think the danger with the proposals is that a lot of people on low to moderate incomes - ministers will say those on under £15,000 don't pay anything and there are graduated increases between £15,000 and £21,000 - but in the current climate that might be enough to persuade large numbers to opt out.

"I really hope that doesn't happen because I don't think it's a good policy to pursue to get people to opt out of pension saving so I think there's a very strong case for looking at that very carefully indeed and trying to find a way forward there.

"The unions have raised some genuine concerns and I hope ministers can look again at some aspects of the way they are planning to increase pensions contributions."

PA