Change is on the way after the government decided that the present schemes are unaffordable

Why are public sector pension schemes being changed?

The government says they are unaffordable, and will become more expensive as longevity increases. The cost is expected to hit £30bn in the next year.

Who is affected?

Six million state employees.

What changes are recommended?

Final salary schemes, which link pension payments to salaries at retirement, will end. Pension contributions will go into new "career average" schemes. These are based on the number of years worked in a public sector job, but will pay a retirement income linked to an employee's average pay rather than the last salary. The normal pension age will rise to 65 by 2018 for men and women, rising to 66 by 2020. Ministers have already announced increases in contributions of three percentage points from next year and a switch in the rate at which pension payments increase from the retail price index to the less generous consumer price index.

What does this mean for my income?

According to John Wright of consultants Hymans Robertson, those on low pay could do better out of the career average proposals; those with average earnings, such as teachers and nurses, will get about the same; while those with the prospect of earning higher than average salaries over time, such as doctors and high ranking civil servants, will lose out. Wright calculates that public sector workers who are promoted during their career and currently retire with final salary pensions worth £60,000 could see this drop to just over £49,000 under the new career average proposals.

Will the changes affect the pension I have already accrued?

No, any pension already built up will still be linked to your final salary. But future pensions rights will accrue in a new career average pension scheme. This means the effect will be limited for those who are near retirement already.

Will everyone in the public sector retire at the age of 65?

No, members of the police, armed forces and fire service who can currently take their pension earlier will see their pension age rise to 60. However, Hutton has recommended that people should be given the choice of drawing their pension benefits earlier or later than the normal pension age. Their pension would be adjusted accordingly.

I've already been told I can only draw my pension at 65. Why?

Many schemes have already raised the normal pension age to 65 for new entrants in an attempt to control costs.

When will this all happen?

It should be possible to introduce the new career average schemes before the end of this parliament.

Does this mean I'm as badly off as those working in the private sector?

No. Most private sector employers offer money purchase or defined contributions schemes (if they offer anything at all). The returns from these schemes are not guaranteed, and all the risk of how their pension performs and whether it produces a decent income is carried by the employee. With a career average scheme, the returns are guaranteed and the risk is carried by the government.

I'm not happy with the pension I'm likely to retire with. What can I do?

You may be able to pay extra contributions into your public sector scheme. Alternatively, insurers are already suggesting public sector workers should consider paying into a private pension.

How much would I need to save?

Pension company AJ Bell has calculated that for every £1,000 a year of pension lost through the changes, you might typically have to build a fund of £27,000 by the time you retire to make up the shortfall. A 40-year-old man retiring at 66 needs to save around £42 a month for the rest of their working life for every £1,000 lost. So a 40-year-old expecting to be £5,000 a year worse off in retirement would have to start saving an extra £210 a month now.

Pension reform may be inevitable, but it is inevitably going to run into resentment

More money to get less pension – after working longer. There's no doubt that public employers have a tough sales job on their hands, and – despite a few worthwhile ideas – yesterday's report from the New Labour peer turned coalition adviser, John Hutton, barely sweetens the pill. The taste will be bitter for many a modestly paid public servant planning a modest retirement, as the unions explained yesterday.

Their frustration is redoubled because cuts are being superimposed on a 2005 deal to raise pension ages, a deal supposed to make the arithmetic sustainable once and for all. Thanks to the energetic posturing of the CBI's Digby Jones at that time, it was reported as a craven surrender, as existing staff held on to their existing terms. But the deal, whose brokers included John Hutton himself, required the new starters – who constitute the majority after a decade or so – to work five extra years to get a full pension. That one change entirely arrested the rise in costs, and Lord Hutton's own analysis yesterday showed that even if things stay as they are, public pensions will consume not a rising but a falling share of national income.

Public sector unions, however, would be unwise to rely on this logic carrying the day. They represent the minority, at a time when the remaining final salary schemes in the private sector are closing at a record rate, as a new survey has just shown. Regardless of whose fault the swollen deficit may be, and regardless of the dangers of immediate slash and burn, there will come a point where it must be reduced, and pain will be felt far and wide.

Even if pension costs are not spinning out of control, they will get squeezed in a climate where voters will expect every last pound of state spending to be milked for all its worth. In particular, with lives that are not merely longer but also healthier for longer, there is a case for saying that the calculation, including for current staff, should be based on a longer working life. Indeed, Lord Hutton might even be criticised for proposing such a sweeping waiver for uniformed servicemen, who, he insists, must always be able to draw a pension at 60, even though his own figures show that most of them move on to other paid jobs, as opposed to a dependent dotage.

His nervousness here is one sign of the fraught politics, which will be dominated by two decisions that the coalition has already made – to ratchet down the real value of pensions by excluding housing from the cost-of-living adjustment, and to demand that public sector workers cough up an extra 3% of their frozen salaries towards their schemes. With these twin storm clouds dominating the horizon, rational appraisal of the Hutton proposal to shift the basis of the pension calculation from final salary towards average pay over the whole career is unlikely to get much airtime. That is a shame, seeing as it could well be a fairer way to calculate who gets what, with the potential to benefit women. But it's always important to read the small print with pensions, and this will depend on decisions that the government has yet to make about how quickly pension rights are clocked up. It will need to be faster, or it will not merely be high flyers who get to the top, but anyone who has ever got a promotion or a mere increment for experience who may find they are short-changed. The context is not one in which ministers can expect the benefit of the doubt.

Inevitable change may be, but when a typical local government pension is just £3,000 a year, as against around £4,000 in the NHS, it is going to run into resentment. All the more so since the cuts have been driven by the fallout from misplaced bets in the City that were laid by people who really can look forward to retiring in gold-plated style. The coalition had better hope it can divide state employees from the rest of the workforce, since most public servants may soon be demanding that this government is pensioned off.

At a meeting in 1995, I heard one of the City's leading executives say that in the 21st century the UK economy would be transformed compared to Europe because we had "fully funded pensions and Europe does not" (Report, 1o March). How things have changed! Hiding behind the row over public sector reform is the greater scandal of the failure of private pension provision since the 90s. Although there is bluster about Brown's abolition of ACT, the fact is that pension assets have been slashed through serial stock market busts. The Asian crisis, the dot com crash, the merger and acquisition mania, and the latest banking scandals have all eroded pension funds. It is not the pension industries fault – they are the unwilling victim of the markets.

Hutton's report does little more than say that if the private sector is in the gutter, public sector provision should be dragged there too. Private-sector employees have as much interest in seeing the example of a good standard of pension provision as the beneficiaries. Otherwise it will be a race to the bottom.

The report also hides the need for the nation to develop a long-term source of wealth for all, and not just a City elite. With a good proportion of public sector pensions funded through investment, they will still be at risk unless City short-termism is tackled, and wealth shared equally. Hutton does a disservice to all.

Charlie Sharp

London

• Public sector pensions are far more efficient than private pensions. The net cost of paying public sector pensions in 2009-10 was a little under £4bn. The cost of providing tax relief to the 1% of those earning more than £150,000 is more than twice as much. The total cost of providing tax relief to all higher rate taxpayers, on their private pensions, is more than five times as much. By changing pension calculations from the RPI measure of inflation to CPI, pensioners in all sectors will be made worse off, with the loss accumulating as pensioners get older.

Taken as a whole these changes are a substantial disincentive to save. They will encourage people already burdened by student debt, high housing costs, and the withdrawal of the social security safety net, to abandon provision for their old age altogether. This contradicts Iain Duncan Smith's words earlier this week about rewarding saving.

The government claims these changes will help reduce the deficit, but they will take money out of the pay packets of today's workers and from tomorrow's pensioners, suppressing demand and damaging any prospect of recovery, as well as increasing pensioner poverty. On public sector pensions, as on so much else, the government has got it wrong.

Richard Murphy Tax Research LLP, Andrew Fisher Leap, Howard Reed Landman Economics, Dr Stephanie Blankenburg Soas, Professor Prem Sikka University of Essex, John Christensen Tax Justice Network, Professor Gregor Gall University of Hertfordshire, Colin Hines Green New Deal Group, Bryn Davies Union Pension Services

• The new proposals mean that women born 5 April 1953 will qualify for state pensions at the age of 62 years and 11 months, while women born a day later will have to wait a further four months. But women born another 12 months later, on 6 April 1954, will have to be 66 years old before they get their pensions.

I know there has always been a discrepancy between men and women and qualifying age for state pensions. Indeed the equalising and raising of the state retirement age is what this legislation is about. However, the raising of the state retirement age for women was to have been phased in gradually. Now not only do we have the state pension goalposts moved, but a totally illogical and unfair system has been imposed on women.

Lynne Nicholls

Dawlish, Devon

• While simplifying state pensions is a step in the right direction, there's still a large number of people who won't be able to retire early. The break-even point for the cost of state pensions appears to be around beginning payment at 76 years old. Over the years even the state pension age reforms will not be affordable. This means younger generations need to save approximately 10% to 20% of their salary to have enough for a retirement. The key to this part is educating them. The last thing many youngsters want to do is start saving for their pension, and it may be unaffordable at present. People joining the workforce now need to be made well aware of these difficulties. Relying on the government is simply not an option.Some Scandinavian countries have got this message. Why can't the UK do the same?

Andrew Melbourne

Square One Financial Planning LLP

• It is all very well for John Cridland to advocate public service pensions to be assessed according to "career average" salaries (End this block over pensions, 10 March), if the things we spend our pensions on were charged at "career average" prices. When I started work in 1942, I was paid 15 shillings (75p) a week. Today, that would not buy a newspaper.

A system based on career average would only be fair if based on increases resulting from promotion, and adjusted for price inflation. It would also be interesting to learn what John Cridland's expectations are of his pension.

Maurice Clift

Crawley, West Sussex

• Thirty years ago actuaries for the teachers' pension scheme calculated that someone leaving work at 60 could expect, on average, to live another 13 years. For someone leaving at 65 the figure was three. Current proposals for retirement at 66 could constitute the quickest way to reduce longevity. Is this the hidden aim, a double reduction in payments of pensions and a reduction healthcare expenditure?

David Gilbert

Dawlish, Devon