What will state pension shake-up mean for you?

He confirmed that state employees face higher pension contributions, having to work longer, and the end of a retirement income based on final salary; exactly as our Money section predicted on Sunday, 27 February.

But there was plenty of good news. He recommended that existing members will continue to enjoy their final salary schemes until staff are switched to a new career average scheme, which is unlikely to be much before 2015. On this basis, those in their mid to late 50s will be largely unaffected.

However, much of the detail remains unresolved. We do not know how higher contributions will be imposed. Hutton spoke warmly of a system which tiered how much you pay in according to how much you earn, so that the better paid are required to inject a higher percentage of their earnings.

Chancellor George Osborne has already announced a 3 per cent increase in the money which all state employees must pay towards their pensions. Irrespective of the final shape of any scheme, there is nothing to stop him upping contributions on Budget day, a little over a week away, by say 1 or 2 per cent.

The pension age will rise in line with increases to the state pension age, so that staff retiring after 2046 will not get their occupational pensions until they are 68. However, firefighters, police and the armed forces will receive a reprieve of sorts.

But the final shape of state pensions for employees will depend ultimately on the government. It could be argued that, in the current climate, the optimum package recommended by Lord Hutton is still too generous.

In which case there could be more bad news ahead. Confused? We answer your questions.

Q: What will happen to my pension now?

A: You may be required to work longer and pay higher contributions, and in time your final salary scheme will be replaced with one which bases your pension on your average earnings throughout your working life.

Q: How much longer will I have to work?

A: Lord Hutton has recommended that you will receive your occupational pension at the same age as your state pension. But state pension ages are rising. This means that by 2018 men and women will retire at 65, and by 2020 by 66.

However, any pension you have already earned will still be available at 60 or 65.

The exception to all this are the emergency services of police, fire and armed forces, who will be eligible for a pension at 60. However, this will still involve retiring ten years later for many.

Q: How much more will I have to pay into my pension?

A: That will be for the government to decide. Lord Hutton does not make any specific recommendations. However, estimates of between 2.5 per cent and 3 per cent are mooted.

Lord Hutton does, though, raise the question of whether different staff should pay higher levies. He says there is an argument for introducing tiered contributions on the grounds that, even with a career average scheme, better-paid retirees benefit more than lower-paid ones.

Q: Why did he opt for a career average scheme?

A: The consensus view is that it is fairer to most people, from staff to taxpayers. It is simpler to understand, it gives certainty and it is more transparent.

Currently, those who retire on big salaries and have sharp earnings boosts towards the end of their careers not only get larger pensions, but these are subsidised by the contributions of lower-paid employees. A career average scheme would stop much of this cross-subsidisation.

Q: How do career average schemes work?

A: Essentially, rather than enjoying a pension based on your salary at retirement, it is based on your average earnings throughout your working life. For every year you work, you clock up a proportion of that salary towards your pension.

Traditionally, most public sector schemes credited you with one-eightieth of your salary. The accumulated credits were calculated against your salary at retirement. If you retired at 60 earning 40,000, you received a pension of 20,000 plus a lump sum on top. Some schemes are sixtieth schemes, so that for each year in work you clock up a sixtieth, and retire after 40 years on two-thirds of your earnings, but with no extra lump sum on top.

With a career average scheme your pension is based on your average salary throughout your working life. It has the advantage that staff will know that for each year of their career they will earn so much by way of salary, but they will also have banked a proportion of that as pension.

For example, if someone earns 30,000 in a sixtieth scheme, then for the first year in the job they clock up 500 worth of pension. Their pension pot grows in the same way if their earnings rise to 31,200 and again the following year to 32,450. But if they retire after year three, and you uprate all these bits of pension by 3 per cent annually, then you will be left with a pension of 1,605.

Q: How does the uprating work?

A: Like the contributions, this will be for the government to decide. The pension could be uprated in line with average earnings, or with the retail prices index plus 2 or 3 per cent, or the consumer prices index.

Hutton makes the point that uprating in line with earnings is fairer overall, but also better both for lower-paid employees and for those who accrue pension early in their careers.

However, he suggests that this should all be calculated as part of the overall package. If a more generous uprating is decided upon, then the accrual rate should be slower.

So, for example, an eightieth annual accrual could be accompanied by an average earnings uprating, or a 40th scheme by one linked to CPI.

Q: Will I end up with a lower pension?

A: Not necessarily. If your salary remains fairly constant throughout your working life, merely keeping pace with inflation, it may make little difference. For example, if you begin work as a classroom teacher, and you are still teaching in the classroom at retirement, then your pension may hardly suffer, if at all.

However, if you begin work earning 21,000, but finish as a head teacher at 80,000, your pension will be largely based on the lower salaries you earned as you worked your way up the career ladder.

Actuary Deborah Cooper, of pensions advisers Mercer, said: "In future, better-paid public servants will not be able to rely on the public purse to pay them a larger pension. They will have to use their own money to enhance their retirement income, which is how it now largely works in the private sector."

Q: I'm heading for retirement now. Will I have to start planning all over again?

A: Probably not, or not much. Firstly, it will take years for this to come to fruition, so even with due haste the new schemes are unlikely to be in place before 2015. Furthermore, Hutton has recommended protecting your past service, so you should be largely unaffected. However, that is not to say elements of the changes, such as higher contributions, will not be brought in earlier.

Q: I work part-time at the moment because I have small children, but had planned to return to work full-time. How will my pension now be affected?

A: In the past, part-time working did not have any impact on your pension, provided you were in full-time work when you retired. Your pension would have been based on your salary at that stage.

In future, you will gain a credit for each of the years worked part-time, but your average will obviously be lower, pulled down by the years of part-time earnings.

Q: I am a 25-year-old nurse and thinking of taking a year off to travel. How will this hit my pension?

A: Anyone who craves a year or two travelling will be advised to do it when they are younger rather than older, all other things being equal, under a career average scheme.

This is because your pension will suffer less if you lose a year when your salary is lower, than towards the end of your career when, if you have had promotions, it will be higher. However, all things are rarely equal. Interrupting your career earlier on might mean you miss out on those promotions, which could also hit your final pension.

Q: I work for a housing association, but my pension is paid by the local authority. Will this arrangement continue?

A: It might well do. Thousands of organisations such as charities, hospices and independent schools have an arrangement to pay the pensions of staff who are not public sector workers. In the case of local authorities, nearly a quarter of schemes pay pensions to those who do not work for the state. Some, such as independent schools, pay an indemnity into the scheme so that no costs should result to the taxpayer.

However, Hutton says it is undesirable for so many non-state workers to enjoy a public sector-style pension, and this should end.

'Nursing will struggle to attract young recruits'

DISTRICT nurse Evelyn Ryan, who has worked in nursing for more than 36 years, believes changes to pensions will make recruiting young people to the profession significantly more difficult.

Evelyn, a nursing team leader in Glasgow, said: "Whatever happens in nursing, and it is not the easiest of jobs, you can always think, well, I've got a good pension to look forward to. But in future that may not be the case. People may think all that hard work is simply not worth the bother. We are already an ageing profession. We could end up with older nurses, and hardly any young ones."

She is concerned at the impact higher subscriptions will have at a time of pay freezes. "In the current economic climate, when we are already being hit by higher prices at a time when our wages are frozen and there is no protection against a soaring cost of living, losing even more money out of our pay packet is going to really hurt."

Finally, she is concerned about plans to raise the retirement ages. She said: "Nursing is a very physical job, you can't go on doing it for ever. How many nurses are fit enough to continue doing the job into their 60s?"