The cost of public sector pensions in Scotland Prepared for the Auditor General for Scotland and the Accounts Commission

The UK government is further reforming pensions to reduce costs

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The UK government is further reforming pensions to reduce costs

46. In June 2010, the UK government asked a former Work and Pensions Secretary, Lord Hutton, to chair an Independent Public Service Pensions Commission. The Commission’s remit is to conduct a fundamental structural review of public service pension provision and to make recommendations in time for the 2011 
UK budget.

47. In its interim report in October 2010, the Commission concluded that there is a case for long-term structural reform. It identified options to provide savings in the short-term and is now considering a range of alternative structures for the long-term, including moving to career average as an alternative to final salary schemes, and increasing retirement age.

48. The UK government has accepted the findings of the Commission’s interim report and is committed to continue with a form of defined benefit pension. In the spending review in October 2010, it announced increases in employees’ pension contributions aimed at achieving savings across the UK, rising from £1.1 billion a year in 2012/13 to £2.8 billion by 2014/15. These savings include savings from ‘cap and share’. This is broadly equivalent to a three per cent increase in the employees’ contribution rate.

49. The UK government also announced that it will change the index used to increase pensions each year from the Retail Price Index (RPI) to the Consumer Prices Index (CPI). Because the CPI usually increases at a lower rate than the RPI, over time this change is expected to reduce the value of a pension by around 15 per cent on average. It could also reduce public service pension expenditure by over ten per cent by 2030 and by 20 per cent by 2060.

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