Hymans Robertson, the leading independent expert in benefits and investment, comments on the public sector pensions report issued by the think tank, Policy Exchange:

John Wright, Head of Public Sector Pensions at Hymans Robertson says: “We welcome the call for greater transparency and more joined-up thinking across all public service pension schemes.  Some, such as the Local Government Pension Scheme are funded arrangements, where contributions from employers and members are invested to pay pensions in future.  This puts the LGPS and similar schemes on a much clearer financial footing than the unfunded, pay-as-you-go schemes with which the Policy Exchange report is primarily concerned. We support translating some of the ideas of a funded model to other public sector schemes to bring greater visibility and recognition of costs.  However, it is not obvious that much would be added by the report’s suggestion that contributions could be invested in government bonds, a circular arrangement that may make little practical difference. More generally, we think more discussion is required as to the appropriate basis for determining the ongoing costs attributable to employers.

“The current debate about the future of public service schemes is one-sided and is largely focused on cutting benefit levels.  But simply slashing public sector pensions could be a false economy, increasing the burden on taxpayers who would have to pay more in future to pay for means-tested state benefits for public sector workers. A more intelligent approach to reform could achieve cost control whilst maintaining a decent level of benefits in retirement. Such measures might include increasing the retirement age, encouraging late retirement, reducing pension increases in payment and switching to average salary instead of final salary schemes. Most of the public sector schemes have now introduced cost sharing and members need to accept that this is necessary if public sector pensions are to survive.  We share the authors’ concern over the lack of appreciation of pension benefits and believe that a total reward approach to remuneration will help address this by making members more aware of the significant value of their benefits.”