Amidst a warm welcome from the pensions community to Lord Hutton's report on the future of public sector pensions, concern is being raised that previously planned contribution rises to the Local Government Pension Scheme (LGPS) threaten to cancel out any gains intended for the retirement plan

Lord Hutton has chaired a public service pension commission over the past nine months, and this week outlined 27 recommendations for major reform. Headline suggestions are the phasing out of final salary pension payouts by 2015 in favour of a career average basis and raising the public sector pension age in line with the state retirement age of 65, increasing to 66 and above from 2020.

Other notable points are Hutton's call that pension rights already accrued by workers should be kept before changes are brought in. He also laid the case for greater transparency of public sector schemes with increased coordination between schemes, good governance guidelines and a much greater disclosure of data.

Pension Funds Insider recently reported on the controversy that Treasury proposals to raise contribution increases to the 4.6 million member LGPS by an average of 3% from 2012.

Mike Taylor, Chief Executive of the London Pension Fund Authority told Pension Funds Insider immediately after the release: "It is disappointing that Lord Hutton didn't comment on the proposed contribution increases. While the recommendations go towards preserving an affordable and good value scheme, the treasury hasn't understood the consequences of what they are trying to pursue.

Taylor added that Lord Hutton's recommended shift away from a final salary to a career average payment basis could completely negate the need for the contribution increases, saying: "If you reran the LGPS's 2010 valuation based on a career average basis that might generate the same amount of money as the contribution increases."

He reaffirmed his fears of a wave of opt-outs once contribution rises hit, stating: "While the schemes have been good value until now but they will not be seen to offer that if the contribution rises go through."

Paul Middleman, principal at Mercer indicated that pension liabilities across the public sector would become more manageable with the shift to a career average basis.

He said that if appropriate design parameters were applied, then career average (CARE) schemes would strike the right balance between employee needs and taxpayer resources so its introduction is a welcome move.

"CARE is more easily aligned with workforce management than final salary. It makes remuneration more transparent, as it reduces cross subsidy within the pension arrangement from low paid staff on flat careers to high paid, high potential staff," he said.

Back in Local Government Pension Scheme circles, there is pleasure that Lord Hutton concluded that the scheme should retain its funded status, differentiating it from the all other public sector schemes that are unfunded. Governance recommendations also gained approval, with Mike Taylor saying: "More employer representation is definitely something to be welcomed as with producing good consolidated data, something that just hasn't happened to date beyond a very cursory level."

The government is set to declare its response to Lord Hutton's blueprint after dialogue with unions, who have expressed anger at the prospect of their members working longer for reduced pension benefits. The prime minister's spokesman told reporters following the release of the report: "We will be engaging with public sector unions and others in taking forward our reform for the future."

dbillingham@wilmington.co.uk

First published 10.03.2011