Danny Alexander is right on pension reform
Trade Unions are organisations committed to getting the best possible deal for their members. Public sector pensions have been a sensational deal for some time, funded as they are by committing future taxpayers to the bill.
The politics then pit a constituency with no votes against one that can mobilise thousands in mass protests and impact millions through economically damaging strikes.
For politicians to resist that movement, instead standing up for the rights and living standards of our children, is extremely brave and should be supported.
The coalition proposal to raise contributions and the retirement age is right. Chief Secretary to the Treasury, Danny Alexander, summarises the challenge well:
“(it is) unjustifiable to ask the taxpayer to work longer and pay more so that public sector workers can retire earlier and receive more themselves. This is not an assault on public sector pensions but an attempt to protect them for the long term.”
June 19th, 2011 at 1:56 pm
The taxpayer does not work for civil service pensions, civil servants do. The value of their pension is taken into account when setting wage levels and the pension paid is deferred wages. Those who set up the various public sector schemes chose not to make most of them unfunded and instead pay pensions on an ongoing basis out of revenue. That was affordable then and is affordable now according to the NAO and a number of other eports.
The issue of affordability is not straightforward and much of the press has engaged in biased anti public sector propaganda over the issue. Negotiations in the last few years have reduced the terms of many schemes and raised the levels of contributions payable. Unions are arguing that the further changes in pensions terms now proposed in effect constitute a levy on their members to pay off a public sector deficit incurred by bankers. They make a case which you do not answer.
June 19th, 2011 at 3:27 pm
The level of public sector underfunding, if nothing changes, estimated by the TPA in October last year was just shy of £1.3 trillion. The last ONS Pension Trends in March 2008, the official figure, is £770bn, putting our exposure to public sector pensions at a similar level to the national debt. Member contributions are evidently not fully funding the schemes, nor then is it likely that the changes are in any way linked to general debt reduction.
That, along with an aging population, equity with non-public sector workers, and equity between generations, is why change is essential.
June 19th, 2011 at 4:39 pm
Part of the injustice with this move is the fact that it will be applied to civil servants who signed up to different terms and conditions from which they will now receive. The pension scheme was a benefit which offsets against the disparity in pay with comprable private sector jobs. Added to this, such a move by a private sector employer would be in breach of contract and not possible. A civil servant could now effectively work for 5 years for nothing. These facts are never mentioned by the headline chasers or those all too willing to subsidise the failings of the banking private sector, that primarily caused this situation in the first place.
June 19th, 2011 at 5:00 pm
Andy, there are a number of responses
Average public sector pay caught up and overtook private sector pay in the last decade. There is now very little between them. If special compensation for low-risk jobs was ever a good argument, it is redundant today.
Second a private sector provider couldn’t offer this kind of pension, they have to build up pension funds. If they could offer pensions like this, the funds would be insolvent and contractual obligations voided. These renegotiations are important precisely to avoid that risk for GB plc.
I’m not sure where you get the nothing for five years idea from, the scheme the Hutton report proposes is defined benefit on average career earnings.
Finally on the ‘it’s all the banker fault’ point. The claim is rather like blaming your credit card company for your shopping habits. Labour ran deficits in every year from 2001, set the regulatory environment, and spent money as though we were a much richer country… largely on inflating public sector wages… unlinked to productivity.
June 19th, 2011 at 5:15 pm
Andy Mayer. ‘Average public sector pay caught up and overtook private sector pay in the last decade. There is now very little between them. If special compensation for low-risk jobs was ever a good argument, it is redundant today.’
Irrelevant. If you signed a contract with a company, you would not expect them to be able to change the terms part way through. This is what is happening here.
‘I’m not sure where you get the nothing for five years idea from’
A Civil servant usually signs up for 40 years before they receive a full pension. This has arbritrarily been increased by the new measures. The scope of the pension has been breached with too as you point out, by it no longer being a final salary pension.
I agree the Public sector are more generous that most other sectors. But changes(effectively breach of contract) should only apply to new employees not those who signed up to a previous employment agreement.
I completely agree too about Labour’s deficit cusing gluttony. But the banks jumped on the bandwagon, and yet continue to be subsidised while their previous irresponsibilities still being rewarded with big bonuses, instead of first paying back their own deficits.
June 19th, 2011 at 6:05 pm
Have the MPs looked at their own more than generous pension arrangements? Are they a superior race?
Glass houses and all that!
June 19th, 2011 at 6:49 pm
Andy, I’m not a lawyer, but I’d be quite surprised if the proposals were a clear breach of contract law given the focus of the debate has been political not legal. The union lawyers will be on it like a rash if they have challenge options. There were for example legal threats made on the change from an RPI to CPI inflator. I believe these failed.
Further in the private sector final salary schemes can be legally frozen and terms changed, depending on what those terms are. I believe but could be wrong that there are also changes that can be applied when contributions fail to keep up with liabilities (i.e you are not obliged to force insolvency before changing over-generous terms) which is the public sector problem.
Someone with a detailed understanding of public sector pension contract might be able to give a more definitive response.
But I would suggest the overarching problem, that these pensions are not fully funded is not going to go away on technicalities. If you were right, for example, the pensions terms for new employees and future pay settlements, for all, would have to be drastically reduced. That for many public sector workers would be worse than renegotiation.
Neil, I agree MPs would be most unwise to change these pensions without changing their own.
June 19th, 2011 at 9:41 pm
Andy
The point I’m making is that in the private sector, changing of pension agreements could be a breach of contract. Public sector workers don’t enjoy such protection(no written contracts in many departments), and thus can have their pensions and (indeed as has been the case over the past couple of decades, i could cite numerous examples)terms and conditions of service removed at the whim of the government.
It is a fact that most civil servants work for less pay than in comparable private sector jobs. The main compensating factor being the pension scheme. This being the case despite your claim regarding pay comparisons.
Indeed on the introduction of the minimum wage, an entire payband had to receive ’emergency’ payments in addition their salaries to avoid the government breaking their own law.
Another example is the changing of public sector redundancy terms, which recently occured.
Could a private company change the law because they wanted to reduce their obligations to their employees?
Again another difference in the public sector is that during boom times,employees don’t receive bonuses or improved conditions of service, that might be the case in private industry(or in the case of banks,always).
I’m all for a smaller state acoss the board, but reducing the public sector burden shouldn’t be at the expense of those who aren’t necessarily in a position to protect themselves.
June 20th, 2011 at 7:00 am
Andy,
Briefly, that would then make public sector pensions akin to most other forms of state payment, from subsidies, to grants and welfare. So I’m not sure that is outrageous given the pension commitment is unfunded. The fair way out of that problem is surely to move to a fully funded contractual scheme, more in line with the private sector.
On the other points there is a paradox. If public sector workers are more prone to be vulnerable than private, as well as being underpaid for equivalence across the board then they would earn less on average. They don’t. The last Earnings survey
http://www.statistics.gov.uk/cci/nugget.asp?id=285
shows median public sector pay 17% ahead. The low private average can be explained by there being five times more unskilled workers. But these then would surely qualify as “those least in a position to protect themselves”. And this is before we consider relative job security.
It may also be a moot point, the test of whether a job is fairly paid is not a list of tariffs, but whether you can recruit the right people at the package offered and how long they stay. Were the public sector being afflicted by mass resignations as opposed to mass strikes the Unions would have a more powerful case.
June 20th, 2011 at 6:03 pm
@ Andy
“reducing the public sector burden shouldn’t be at the expense of those who aren’t necessarily in a position to protect themselves.”
But they can. As I understand it the accrued benefits are protected if you currently have 10/40ths of a final salary scheme you retain that but you will then start to accumulate fractions of an average salary scheme.
In these circumstances employees can leave, if they don’t like the terms of the deal they can go to another employer. Free movement is a great protector of people.
On a side note there is a lot of rubbish written about average salary schemes vs final salary schemes. If done appropriately there should not be any detriment for the majority, the main beneficiary are those who retire from very highly paid jobs like permanent secretaries of government departments.
June 22nd, 2011 at 5:26 pm
Pensions are not contractual in the Private sector.
The TUPE Regs do not apply to pensions.
You have to agree to join a pension scheme, it is not mandatory
You would have to be a fool not to join a public sector pension scheme, as the bulk of the pot is made up of taxpayers money.
The very people who need that money to help provide their own Defined Contribution pension