Hutton review requires dramatic improvement in communication of pension value to public sector employees
Lord Hutton’s recent public sector pensions report provides a comprehensive and welcome insight into the complex nature and variety of the current public sector provisions. However, the Chartered Institute of Personnel and Development (CIPD) is concerned that he perhaps underplays the importance of effective employee communication with public sector employees, regarding the value of their pensions and how this can be instrumental in helping to deliver high quality public services. He clearly defines the primary role of pension provisions as being to ‘ensure adequate levels of retirement income for public service pensioners’ but, as Charles Cotton, CIPD performance and reward advisor, says: “No matter how much more affordable new public sector pension arrangements are made, if employees don’t value and appreciate the employer investment then the money is simply being wasted”.
Hutton reveals exactly how varied the provision of pensions is, across the different parts of the public sector. However, the CIPD recommend cost saving measures (detailed in their paper ‘Transforming public sector pay and pensions’) that they believe can be applied across the board. These include the setting of a pension age at the same level as the state pension age, as proposed by Lord Hutton and as is already the case in local government. Also recommended by Hutton as a possible cost reduction method is the moving of the future basis of public sector pension accrual from a final salary to a career average basis, as is currently the case in the civil service. This suggestion is strongly supported by the CIPD.
Charles Cotton is anxious that public sector employees still realise the value of their pensions without getting too caught up in the negative aspects of reforms:
“There needs to be greater recognition on the part of employers and unions of the scale of the challenge in communicating to public sector workers the value of the new pension arrangements. Employees are being asked to contribute, on average, 3% more for less at a time of pay freezes, increased living costs and when their benefits will be uprated by CPI rather than RPI – but this does not take away from the valuable nature of public sector pensions.
“Public sector pensions, even after these reforms are implemented, will remain generous and cost-effective for public sector workers. Communicating this fact will play an important part in limiting the risk of industrial action in the short-term. However, there is a more important long-term gain in ensuring public sector workers are clear of the immense value of their pension provision, and the contribution that their employers make to it”. The CIPD Employee Outlook: Focus on Pensions report highlights that this is not always the case, as 33% of all employees are unaware of the level of contribution that employers make to their pensions, with this proportion rising to 59% of public sector workers, compared to only 18% in the private sector.
In summary, Cotton states that the CIPD welcome Lord Hutton’s ‘thorough and considered report’ and see that the challenge for the government going forward is to ensure that the vast cost of such pensions, even after the Hutton reforms are implemented, ‘delivers value for money for the taxpayer’. He is adamant that this will only be achieved if their value to public sector workers is appreciated, as without this they won’t effectively drive the necessary recruitment, retention and motivation of high performing employees, who are dedicated to consistent delivery and continuous improvement of high quality public services.
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