The UK pensions industry has welcomed the publication of Lord Hutton’s interim report on public sector pension reform, which highlights the need to look to Europe for examples of appropriate pension scheme designs.

The report, which was officially launched today at the UK’s National Association of Pension Funds (NAPF) conference in Liverpool, was heralded as “realistic” and “long overdue” by some of the UK’s leading pensions bodies. Joanne Segars, chief executive of the NAPF, said the report “dispelled some of the myths about public sector pensions, but was realistic about the need to reshape them”.

She commented: “Lord Hutton has heeded our warnings about not placing too much of the burden on the low paid, recognising the risk that many may opt out of pensions altogether. Reforms should be focused on those who are set to gain the most out of the current system.”

Similarly, the CBI applauded Lord Hutton for rightly recognising the need to measure the cost of public sector pension benefits properly, and ensure that this cost is met by employers and their employees. John Cridland, CBI deputy director-general, said: “Everybody needs to understand the true scale of pension liabilities being built up. Every year there is a £10 billion gap between what state sector employees and employers contribute and the value of the benefits that the Government promises for these contributions. Taxpayers cannot be expected to make up the difference.”

The CBI also specifically welcomed Hutton’s plans to draw on international experience when considering alternative pensions structures.

“Countries like Sweden and Holland reformed their systems some 15 years ago, and the Swedish model of 'notional defined contribution' could provide guaranteed pensions without unpredictable taxpayer liability,” said Cridland.

Other industry players have also welcomed the report. Consultancy firm Mercer highlighted Hutton’s recognition of the need to explore alternative pension scheme designs, as different designs are likely to be appropriate depending on the nature of the employer and the sector and industry in which it operates. Deborah Cooper, head of Mercer’s Regulatory Research Group, said: “We maintain that a form of defined benefit is likely to be right for many employees in the public sector but defined contribution schemes also have a role, so we are pleased to see various types of scheme design under assessment.”

Similarly, Jonathan Polin, head of marketing at Ignis Asset Management agreed that examining the potential for hybrid/risk-sharing pension arrangements in the public sector was a positive. He added: “Finding the right balance will be key to ensuring workers continue to receive an adequate income in retirement while also ensuring taxpayers are not unfairly burdened.”

Offering a view from outside of the UK, Jerry Moriarty, director of policy at the Irish Association of Pension Funds (IAPF) said that in general the proposals outlined in the report made sense, and the type of structures being proposed could also work to allow private sector DB scheme to be sustainable and continue.

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