Final salary public service pensions could be replaced by new schemes where pension entitlement is based on career average earnings if new proposals get the go ahead of the Government.
The final report of Lord Hutton of Furness sets out a number of recommendations to the Government on how public service pensions can be made sustainable and affordable in the future, while providing an adequate level of retirement income.
The main recommendation of the report is that existing final salary public service pension schemes should be replaced by new schemes, where an employee's pension entitlement is still linked to their salary, but is related to their career average earnings, with appropriate adjustments in earlier years so that benefits maintain their value.
The report suggests that it should be possible to introduce these new schemes before the end of this Parliament, in 2015, while allowing a longer transition, where needed, for groups such as the armed forces and police.
Other key recommendations in the report include linking normal pension age in most public service pension schemes to the state pension age, and introducing a normal pension age of 60 for those members of the uniformed services - armed forces, police and firefighters - who can currently retire before 60.
It is also suggested that a clear cost ceiling for public service pension schemes should be set.
However, the report wants the pension promises that have been earned by scheme members to be honoured in full and the final salary link for past service for current members to be maintained.
"These proposals aim to strike a balanced deal between public service workers and the taxpayer," said Lord Hutton.
"They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs."
John Cridland, CBI director-general, said the report is a big step forward towards making public sector pensions affordable and sustainable in the long-term.
"People will need to work for longer to pay for the fact that they are living longer," he added.
"There may be exceptions in very demanding jobs, but public sector retirement ages should match the state pension age as is the case in the private sector.
"Public sector employees are going to have to contribute more to get a good quality pension when they retire.
"Greater life expectancy is something to celebrate, but someone has got to foot the bill."
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