It's time to end the pension injustice
Blog by: ruth emery on Jun 16th, 2009
Duck houses, moat maintenance and plasma TVs have been dominating the column inches lately.
The unfolding of the expenses saga has riled taxpayers so much that the story has been in the papers for more than a month now. MPs lost their jobs and speaker Michael Martin was forced to quit.
But there is another story, a much bigger bill that we the British public have to foot, that rarely makes the front pages.
I’m talking about the big fat injustice that is public sector pensions.
If you work in the public sector, or have friends or family who do, you’ll know all about the lovely benefits. Lots of holiday, generous maternity and paternity leave, extra bank holidays like the Queen’s birthday, flexible working, and of course their gold-plated final salary pension. These are all benefits that were introduced a long time ago, when public sector pay lagged the private sector.
But nowadays public sector workers get paid more than private sector employees. Indeed, a precise figure was revealed in February: state workers earn an average of £62 a week more than their private sector counterparts, a 50 per cent increase in the differential in only four years.
So they get paid more, and they get a final salary scheme. In the private sector, you get paid less, and normally have to settle for a less generous scheme such as money purchase, or in some cases no pension.
Following announcements from BP, Barclays and Morrisons earlier this month that they would scrap their final salary schemes, this leaves just four FTSE 100 firms that offer final salary pensions to new employees: Shell, Tesco, Cadbury and Diageo. But with rising pension deficits made worse by the recession, it can’t be long before these companies also axe their schemes.
Employees may be upset if their scheme closes to future accrual, but it is an understandable decision by chief execs. Far better to rein in the benefits spend (a final salary pension adds well over 20% to payroll costs), than cut actual jobs, I say.
We have to accept the bleak fact that this is the end of the road for final salary schemes, and we must all be more responsible, and ultimately save more, to make sure our retirements are comfortable.
It is a hugely miserable truth to accept though when those on the state payroll, which of course includes MPs, are still getting their juicy pensions.
Last year, the cost of this to taxpayers was £45 billion. This is more than the cost of defending the country!
Your council tax is also paying for your local town hall workers’ pensions. Those gold-plated pensions swallow a staggering 25 per cent of all council taxes - a bill that has more than trebled under Labour.
It’s not just a cost issue, though, for already struggling households up and down the country.
The Confederation of British Industry this week warned that businesses are being put off bidding for public service contracts by the need to mirror costly public sector pensions when staff are transferred from the public sector to the private.
The CBI said this had ‘worrying implications for innovation and value for money in services such as the NHS, prison services, and the Flexible New Deal’.
This all makes for rather grisly reading. The private sector is getting shafted from three different angles: it’s pining the loss of its final salary schemes, it’s having to pay for state workers’ pensions, and the public services that it pays for through tax aren’t as good as they could be.
The Tories and Lib Dems have both publicly said that this ‘pension injustice’ needs to be looked at. It’s easy to say in opposition, but if the Tories get into power will they vote for a bill that will not only end final salary pensions for nurses, teachers and council workers, but also for themselves and their parliamentary peers?
The UK deficit is swirling higher and higher, and will do so for generations to come, as banks are bailed out, more redundancy pay is dished out and the government collects less tax from recession-hit businesses. As the debt balloons, taxes will be pushed up.
Surely it’s time policymakers climbed out of their comfy pension cocoon and binned public sector final salary schemes, making the UK a much fairer society and saving billions of pounds in the process?
Ruth Emery is deputy editor of Money Observer, Moneywise's sister publication
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Yes we all pay towards public sector workers' pension schemes, some of which are contributory. Surely we also pay towards private sector company schemes every time we use their services or buy their products (unless there is a pension fairy providing the money) just as each time we use or buy from them we also pay their salaries or wages.
"The Confederation of British Industry this week warned that businesses are being put off bidding for public service contracts by the need to mirror costly public sector pensions when staff are transferred from the public sector to the private." Why are they put off?
Surely if they all have to make that provision, they will all reflect it in their bid and will therefore all be bidding on the same basis.
"Employees may be upset if their scheme closes to future accrual, but it is an understandable decision by chief execs. Far better to rein in the benefits spend (a final salary pension adds well over 20% to payroll costs), than cut actual jobs," The sad truth is that the chief execs will not also rein in their own benefits.
If you are trying to alienate thousands of your customers, who work in the public sector - good job.
It was all fine when the private sector earned more that the public sector, private pensions looked good and £5,000 bonuses could be expected every year. Now that things have changed, your only reaction is to claw at and drag down someone who is now a bit better off (according to your own figures).
Double standards if I've ever seen them.
For heaven's sake stop whining about public sector pensions!
If they are so good why aren't you working in the public sector? We all know why - nurses, refuse workers etc have to handle the 'shit' that no-one else wants to, and their health is put at risk. I wouldn't want to work for the armed forces as I value my life too much. We all have to pay a price for the job we do.
Private sector workers have long enjoyed better conditions, perks, expenses, pay. As soon as harder times hit you are the first to complain. I didn't hear you complaining before. This is just sour grapes.
Stop begrudging what little 'compensation' there is for the hard workers in the public sector and have a little more respect.
Good to see my piece causing a bit of a stir...!
In my defence:
Firstly, I have a lot of respect for public sector employees. They do essential jobs, and some of my friends work for the public sector and do a very good job. But of course, their health is not always put at risk - teachers, MPs and civil service employees for example.
Secondly, you're sort of missing the point. Public sector employees have for some time been earning more than their private sector counterparts, and I, along with other journalists, people in the financial and pensions industries, and even MPs, have been 'whining' about public sector pensions for quite a while. The backlash against public sector final salary schemes didn't just start as soon as the recession started. Rather, it's time for a more equal society, and time that the government should be able to spend their money on other things rather than having to pay out billions in out-dated pensions every year. Please do also remember that there are lots of private sector employees who receive no pension whatsoever from their employer, and people that earn £5,000 bonuses are sadly in the minority.
So they get paid more, and they get a final salary scheme. In the private sector, you get paid less, and normally have to settle for a less generous scheme such as money purchase, or in some cases no pension.
3freester