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March 14, 2022

British public sector workers face smaller pensions

And you thought Wisconsin's governor Scott Walker was determied to gut public service unions.

If Sir John Hutton gets his way, British public sector workers could pay more for their pensions, receive lower payouts and have to work much longer before retirement.

Hutton’s main recommendation, carried over from an interim report last summer, is that the final salary link for public sector pensions should be replaced with new schemes which calculate pensions on a "career average" – the norm in many Canadian pension plans which generally take an average of your last five years on the job.

Although accrued pension benefits in the existing schemes would be fully protected, this would still mean lower pensions for the majority of workers and could mean cuts of up to 40% for higher earners.

Other controversial recommendations include linking public sector normal retirement age to the state pension age, currently 65 but due to increase to 66 for both men and women by 2020.

Many existing public sector employees, although not recent hires, still have a pension age of 60. Some, including the armed forces, police and firefighters can currently retire several years earlier than that and Hutton suggests a normal pension age for these workers of 60. 

Tough to swallow, sure, but things could have been be worse.

In an earlier report, Hutton had considered a hard cap on the amount higher earners can receive from the plan and simply switching everybody into the cheaper defined-contribution schemes which are now the norm in the private sector.

Pension reform is a hot topic these days. Do these changes make sense to you? Sholuld they influence Canadian thinking on the topic?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...