Self-Sufficiency is the Key : Addressing the Public Sector Pensions Challenge

This paper compares the current system of public sector pensions to a Madoff-style pyramid, now collapsing under the weight of insufficient contributions, rising longevity and an ageing workforce. Without reform, we are embarked upon a slippery slope to fiscal calamity. The state's capacity to absorb pensions-derived longevity risk is limited; it should be utilised solely within the State Pension, rather than allocated in favour of any particular employment sector. The vision is for comparable pensions, irrespective of employment sector: public sector pensions should be, ultimately, defined contribution (DC)-based.An essential pre-requisite to reforming public sector pensions is to raise the basic State Pension above the Guarantee Credit threshold to, say, £140 per week. This would help allay pensioner poverty concerns, thereby weakening the unions' position in the forthcoming negotiations.Pragmatism suggests an implementation “two step”; an initial phase of watered-down DB provision before the (long signalled) introduction of a pure DC framework, perhaps in 2020. In parallel, we should start moving towards a funded framework, thereby seizing an opportunity to catalyse a savings culture amongst 20% of the working population; public sector employees should be compelled to participate in NEST.Reforming public sector pensions is foremost an exercise in effective communication and negotiation, rather than a technical challenge. There are few, if any, themes more loaded with technical detail and jargon; perfect material for obfuscation and bamboozlement.The report has won cross-party and industry support, including Baroness Hollis (Labour) and Lord Blackwell (Conservative)