FYI
Based on your responses, Financial Mail has drawn up an eight-point plan for reform, balancing the interests of past and present workers with the bill taxpayers will face.
Keep promises on pensions already earned
Financial Mail has a strong record of defending workers when promised pensions are under threat. And the same applies in the public sector. Trying to strip workers of pensions already earned is morally wrong and is a retro - spective pay cut. Similarly, pensions already being paid to retired workers must remain untouchable.
Whatever changes are made to future pensions, public sector workers should be entitled to the pensions they have already built up. For example, someone with 20 years' service for a pension paid at 60 should be able to take that part of their pension at 60, though they might have to wait longer to draw the pension they earn after reforms bite.
The terms of reference for the new commission appear to acknowledge this. They say pension rights already earned should be protected.
Don't throw the baby out with the bath water
There is a general feeling that public pensions are too generous. But any decisions taken in the face of today's massive national debt risk going too far, leaving us with public pensions that are too mean.
Some of the harshest critics say that all pensions linked to salary should be stopped immediately. They say public workers should take their chances on defined contribution pensions where the final amount relies mainly on stock market performance.
But public service unions argue that pensions must be adequate. There is little point in creating a system that leaves lower-paid workers on benefits because their pensions are too modest. So reform must strike a balance.
Stuart Southall, chairman of the Association of Consulting Actuaries, says: 'There is a danger of compounding one unfairness with another by just targeting the public sector.
'It would be unwise to respond by simply increasing employee contributions and by beating down public sector pension benefits rather than looking at the pension problem - private and public sector - in the round.'
Treat all public workers equally
There are many different schemes in the public sector with members paying various contribution rates and retiring at different ages.
Even within the public sector, there is resentment that some workers get a far better deal. For example, firefighter Paul Horton retired from the London Fire Brigade in January after 30 years' service.
Paul, 51, now a fire safety officer, says: 'I paid 11 per cent of my salary, at times more than £330 a month, towards my pension. Compare this with others such as MPs or civil servants who have paid little, sometimes even nothing, towards their pensions.'
There is a strong case for a single 'public service' pension with a common set of rules and contribution rate. Why should a local government administrator pay 7.5 per cent of salary for a pension at 65, while a Civil Service administrator could pay as little as 1.5 per cent for a pension at 60?
The second clear message is that contributions should be levelled up, not down. Many readers, such as Nick Jackman, argue that too many public workers are not paying realistic sums for their pensions.
Nick, 53, a finance manager at a printing company, says contributions from workers should rise across the board to about 12.5 per cent of pay.
Nick, who lives in Winchmore Hill, north London, with wife Peng, says: 'I look at what I need to save to buy a decent pension at today's market rates and it would take lifetime savings of about 25 per cent of pay. Splitting that half-and-half between employee and employer seems fair.'
Hutton is expected to back a shortterm contribution increase for all public sector workers from next April as a stop-gap measure.
Reforms should also apply to today's workers
The biggest criticism of the efforts made to reform public pensions so far is that in too many cases they apply only to new recruits. This has left hundreds of thousands of workers building up unsustainable benefits, some with potentially 30 or 40 years more in the system. The next batch of changes have to apply to all staff for all future service.
Bring retirement age in line with State pension age
The State pension age is already increasing to reflect our improved health and longer lives. Many private sector schemes have introduced-later retirement ages. While there has been some reform of public pensions, it must go further.
The State retirement age, soon to be 66, should become the normal pension age for public schemes. Those who want to stop working earlier will have to save for it themselves.
Legal secretary Angela Gregory is among those who feel the public sector should work longer.
Angela, 62, who is carrying on working until she is 65 to help bolster her pension and retirement savings, says: 'The entire private sector thinks the public sector should carry on working until they are at least 65 before they qualify for a pension.'
Angela, from Hucknall, near Nottingham, is married to Tim, 64, a former accounts manager. She has had to make her own pension arrangements for most of her working life, though her current employer does pay into her pension.
She says: 'Taxpayers cannot be expected to pay for the public sector when they are being deprived of salary rises themselves.'
There must also be a clearer line between the age you stop doing a particular job and the age when you draw a pension.
In some jobs, such as firefighting or the Armed Forces, the physical challenges make it impossible to carry on beyond 50 or 55.
But the practice of immediately drawing a pension at this point is unsustainable. In future, such workers will have to accept they will need to carry on working in a different role, possibly even with a different employer, before drawing their pension at State retirement age.
Look for a halfway house
Public sector pensions are unaffordable in their current form. But there are dangers in passing on all the risks of paying for retirement to employees, whether in the public or the private sector.
This means looking for a halfway house where the costs and risks to the taxpayer are contained, but the State, as the nation's biggest employer, still has a role in providing a secure pension. One option is to introduce a career average pension, based not on your wage when you retire but on average earnings in your working life. This is already used for new recruits in the Civil Service. Another way to contain costs is to cap increases in pensions-already being paid. At the moment, they rise automatically each year in line with inflation.
Last week's Budget made a start. From next April, public pensions will rise in line with consumer price inflation, not retail price inflation. Over time this tends to be slightly lower and the switch is estimated to save £700 million a year.
But there is room to go further. Accounts administrator Doci Morton, 55, who lives in Wilmslow, Cheshire, with husband Martin, 58, an architect, is saving hard for her own retirement.
She says: 'I know that if I want to buy an index-linked income through an annuity, I'm going to have to settle for a much lower starting pension. It could be 40 per cent less on day one. Yet public workers get that inflation guarantee at no extra cost.'
One option would be to switch to limited price inflation where the pension rises by the lower of inflation or 2.5 per cent each year.
Introducing the career average, later retirement ages and limited price inflation would make a salary linked pension more sustainable.
Cap the maximum pension
The maximum pension should be capped. Unfettered pensions for high earners prompt huge resentment. Before the election, the Tories proposed a maximum public pension of £50,000. But feedback from readers suggests a lower level would be popular. A maximum pension of £35,000 a year, for example, still pays £10,000 above average earnings.
Another option, from reader Colin Gould, 53, from Waterlooville, Hampshire, would be a secure salary-linked pension for pay up to a certain level, say £25,000. Beyond that, public workers would save into a defined contribution scheme.
Colin, a former Army officer who has also worked in financial services, says: 'In this way we safeguard the lower paid and their right to a secure pension. And it provides a stable platform for the better paid, allowing them to build on this through a scheme that faces the same risks as most of the private sector.'
Halt the pension abuses
A lot of anger over public sector pensions is directed at those who abuse the system. Historically, it has been far too easy to retire early with no reduction in pension or to benefit from a late promotion to enhance pensionable salary.
Some have even rejoined the public sector near the end of their career for a year or two, with that salary then being used as the benchmark to pay their entire pension.
As Doci Morton says: 'There are numerous cases of people retiring early, then coming back the next week as well-paid consultants.'
While some of the rules have been tightened, there is still a long way to go. Departments should be made to pay the full costs of such early retirements from current budgets.
Read more:
http://www.dailymail.co.uk/money/article-1289870/This-want-fund-future.html#ixzz0s99firqV
