UK - Progressive risk sharing and a public sector pension system modelled on the local government pension scheme (LGPS) was today urged in reform proposals my Mercer.

In submissions to the Hutton commission, chaired by the former Labour minister John Hutton and tasked with evaluating public sector pensions, the consultancy said that a one size fits all system amounted to a "one size fits no-one" approach to pensions.

Chris Hull, a partner at Mercer, said: "The current all or nothing, defined benefit versus defined contribution polarised positions do not give rise to pension arrangements that offer a good solution across the range of employees' career paths, work patterns and employment terms."

Hull urged a hybrid design for pensions, offering a proportional and progressive approach to risk sharing so that the lowest paid were also burdened with the least risk, echoing suggestions made by the Association of Consulting Actuaries last week.

Mercer added that a transparent public sector pension system was vital for its continued existence and praised the LGPS arrangement, with annual reports and triennial evaluations.

Hull said the LGPS approach, structures and principles should be developed and built upon across the public sector, adding that the local schemes operated in the confines of well specified governance structures.

Hull also said pensions should be under a certain degree of local control, allowing for a tailored package to fit each organisation and their staff.

However, the consultancy argued that occupational pension schemes should maintain their tax favoured status and recommended payments should be at least 50% of income when scheme members retire.

In a separate submission made last week, independent consultant Ros Altmann proposed that public sector workers should begin paying full National Insurance (NI) contributions, as the current arrangement sees their state second pension (S2P) funded by the Treasury rather than the employer.

Altmann claimed the current arrangement - which sees public sector workers pay 9.4% NI, while employers pay 9.1% rather than the customary 11% and 12.8% - creates a situation where the government postpones payments but ends up with higher costs come retirement.

She had further criticism for the way public sector workers currently draw the S2P, saying: "Public sector workers actually receive their S2P as part of their scheme benefits from their scheme pension age, which is often age 60, while the rest of the population has to wait till state pension age, which will be rising to 68 in future."

Altmann argued that reform which ensured public sector workers and their employers paid NI at the full rate would put a stop to the "current hidden subsidy" for the sector, but conceded that the cuts achieved by the move were less obvious.

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