marylsommers: Lord Hutton: 'Pensions change is about fairness, not saving money'

Lord Hutton says he has tried to 'bring to bear good Labour values' in his recommendations to reform public sector pensions

From the way Lord Hutton of Furness tells it he is also the Lord of Fairness, treading a delicate line between a rightwing government that scents public sector blood and the equally bloodthirsty unions sniffing out an excuse to flex their muscles against the government's cuts under the guise of protecting their pensions.

But being a former Labour cabinet minister turned head of the coalition's review into public service pensions is a lonely position. Has it lost him friends? "Yeah, probably, a few," he said. "I'll get over that. This is not about party politics. I am not a Conservative. I am a Labour supporter, I have always been and I will always be a Labour supporter.

"This is a problem that will confront both Labour and Tory governments. Let's try to find a decent solution. I think the values I've tried to bring to bear are good Labour values: fairness, looking after the low paid and trying to find a sensible deal for them."

Of the two major recommendations in today's report, Hutton insists the change from the so-called "gold-plated" final salary schemes to ones based on career averages means a link with a workers' earnings is retained unlike the vast majority of pensions in the private sector, which are instead based on the contributions employees make.

Speaking from the Treasury buildings in Whitehall, Hutton told the Guardian that under his plans two-thirds of people could get more, while only the most wealthy, those can best afford it, lose out.

"I'm not making that recommendation to save money," he said. "I'm making that recommendation because I think those career average schemes are fairer to the broad majority of people who work in public services whose careers are not marked by sudden salary spikes like the high fliers. I'm making this fundamental change not to save money but to make the system fairer."

The potential to save significant money comes from the proposal to extend the normal pension age to match the state pension age of 65 ? rising to 66 in 2018. It is also the element that will trigger the most consternation from unions.

He said: "We've got to, and I'm afraid this is the difficult thing, we've got to be prepared to make some tough choices. The choices are: paying in more ? well that could deter people from being scheme members; take less valuable pensions ? well that might cause problems with means-tested pensions when we retire; or we work longer, and take a good quality pension because we're working longer; that seems to me the most attractive, the most fair, result because we are all able to contribute and shoulder the burden and cost of change.

"What we can't do in my view is simply say that the new entrants have to work to 65 now but existing employees can go at 60. Where's the fairness in that across the generations? I don't see it. We've all got to be part of meeting this enormous challenge of meeting rising life expectancy.

"I've got four kids who are working, three in the public sector. This is big-ticket territory for them but I can't sit back and say I'm going to take everything I've got and there's going to be no change for me but you guys are going to take a worse pension, or you guys are going to have to work longer. That is not my definition of social justice."

Hutton's interim report also suggested raising contributions to plug the gap ? the most controversial recommendation and most likely to be at odds with his concern, expressed in the report, about the potential for public sector workers to opt out if the schemes seem too expensive, creating further problems of people retiring into poverty.

The government pre-empted the final report by announcing a three percentage point increase in contributions across the public sector, phased in over three years starting next year, to raise �2.8bn ? and changing the interest rates from RPI to the lower CPI.

Hutton seeks to justify this, despite the fact that the Office for Budget Responsibility has said that even at this level there is propensity for some people to opt out of the scheme.

He said: "I recommended that we should look at increasing contributions because we just weren't funding the pensions properly in my view and this is why there is a �10bn deficit in the funding envelope for public service pensions, and that cost is being met entirely today by ordinary taxpayers, and I don't think that is a sustainable platform for the next 20, 30, 40 years to be constantly asking the taxpayer to fork out big chunks of money. We've got to get these schemes into a proper balance."

What he will get credit for is that the public sector won't, on the basis of his report, follow the private sector into moving away from salary-linked pensions.

"I don't want to go down the road of the private sector and defined contributions. Is it easy? No. The right will say I haven't gone far enough, the left will say I've gone too far. But what I'm trying to do is do a balanced analysis with proposals that are fair to the taxpayers and scheme members although it does involve a big change."

He has two messages. To the government, he says that they must not cherry-pick his proposals, that anything less than the package will be unfair. To the unions, he says, "Sit down and talk because there's everything to play for".

Polly Curtis

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