Sector welcomes Lord Hutton's recommendations on public sector pensions reform

Proposals could mean less risk and lower costs for charities with public sector pension schemes

Lord Hutton
Lord Hutton

Charities with employees enrolled in public sector pension schemes are likely to face lower costs and less risk under recommended changes to public sector pensions published today.

The interim report of Lord Hutton's Independent Public Service Pensions Commission, set up by chancellor George Osborne earlier this year, recommends increased levels of contributions from employees enrolled in public sector schemes and a change from payments based on employees' final salaries to one based on average earnings.

These changes are likely to affect several thousand charities employing more than 10,000 employees who are enrolled in public sector schemes, usually because they have taken on staff as part of a public sector contract.

Ralph Michell, head of policy at chief executives body Acevo, said that the changes would reduce the large liabilities and risks that charities faced when signing up to public sector pension scheme because they took on public sector employees through transfers. Public sector schemes are usually more expensive than their own.

"Lord Hutton's recognition that current arrangements for public sector pensions are a barrier to more diverse public services is an important one," Michell said. "Moves such as he has outlined will reduce the sometimes prohibitive risks to third sector organisations taking on service delivery."

Megan McInally, policy manager at the Charity Finance Directors' Group, said the report would provide "welcome respite" for charities employing staff with public sector liability pensions.

"As charities take up more public service delivery from the public sector, theses recommendations may afford a greater ability to manage the risk," she said.

Ian Bird, a partner at pensions expert Foster Denovo, said the proposed changes were likely to reduce cost and risk for charities in the future. But he said they were also likely to raise questions of affordability for some charity employees.

"This scheme provides excellent value for employees," he said. "However, charity workers tend not to be the best paid, and if contributions increase, some will have to ask whether they can afford to pay their contributions."

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