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Public sector workers will need to make higher contributions to their pension schemes if the government wants to make short-term savings, according to an interim report.
However, the report authored by Lord Hutton said any increase should protect the low paid and exempt the armed forces.
The former Labour work and pensions secretary was commissioned by chancellor George Osborne to conduct an independent review into public sector pensions, who warned that the projected rise in the annual bill for schemes was "unsustainable".
Lord Hutton called for a new model of pensions to be introduced that shared the risk more evenly between the government and workers.
But he ruled out replacing final salary pensions with individually-funded defined contribution ones, as has happened in much of the private sector.
Lord Hutton said there is a "strong case" for public sector workers to be made to increase their monthly contributions to tackle the £1tn black hole in the public pension pot.
The report is expected to stoke anger amongst the unions, who had already promised coordinated strike action if the government were to go ahead with plans to slash public spending to tackle the national budget deficit – currently standing at 11 per cent of GDP.
Lord Hutton said public sector workers’ retirement age must also be raised to reduce the cost to the taxpayer as life expectancy continues to rise.
The final report will consider a number of other long-term options to restructure the system, including a career average scheme rather than one based on the salary immediately before retirement, he said.
Lord Hutton said he did not want to see "good, decent people" facing poverty in retirement, but stressed the problem could not be "buried" any longer due to the problems being stored up.
Speaking to Radio 4's Today programme, Lord Hutton made clear that Labour's pension reforms "did not go far enough", he added "we shouldn't continue with final salary schemes in the public sector".
"I feel very uncomfortable at retiring at 60 while my children will have to retire at 65. I don't think that's fair," he said.
"There is a general principle - it is unsustainable to remain wedded to this idea that you can still retire at 60. We are all living much longer in retirement. We expect to live to 88 or longer."
He continued: "My real focus has been on long-term reforms. We have under-estimated the cost of providing the current range of public sector pensions for years."
The commission's final report will be delivered in time for the 2011 budget.
Article Comments
There has been much public discussion about the affordability of public service pensions. To inform that debate, the National Audit Office has published a report designed to bring greater transparency to, and understanding of, the cash costs involved.
View this report in full here- http://bit.ly/aUfB5B
National Audit Office
8th Oct 2010 at 3:50 pm
Lord Hutton has rejected the caricature of 'gold-plated pensions'.
He has questioned some of the government's economic projections in calculating the true cost of public sector pensions and argued for public sector pensions to be a benchmark for the private sector to aim towards.
Gail Cartmail, Unite
7th Oct 2010 at 12:42 pm
GMB consider that Hutton has not given the green light to attack public sector pensions and Hutton is right to resist a slash ands burn approach.
GMB has always believed that public sector pension reform should be evidence based and Hutton has dispelled some of the myths peddled by politicians and the media alike.
Brian Strutton, GMB
7th Oct 2010 at 10:45 am
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