Is it time to slash public sector pensions once and for all?

Last updated: Apr 18th, 2012
Feature by Moneywise

NO: Dave Prentis, general secretary, UNISON

The government argues we need to make public sector workers pay more, work longer, and get less in their retirement, to keep their pensions affordable.

But they already are. The plans are just an extra tax on public sector workers to reduce the bankers' deficit - and on top of job cuts and frozen pay, it's pushing them too far.

The schemes don't need this drastic change. Reforms made four years ago are already reducing their cost as a proportion of GDP. Both the local government and the health pension schemes have billions more going in than is paid out in benefits every year, and the local government scheme has investment funds worth more than £140 billion invested in UK stocks and shares.

The real crisis is in the private sector, where two thirds of workers get nothing from their employers towards retirement. This lack of pensions in the private sector will cost taxpayers billions. But a race to the bottom - dragging public sector pensions down and letting taxpayers pick up the bill for means-tested benefits top-ups - will bump up the cost even more.

What our ageing population really needs is a decent pensions deal for all. UNISON members dedicate their lives to caring for others, they don't take strike action lightly. But eight months of talks have gone nowhere. The government has a choice: negotiate seriously, or risk the biggest industrial action in a generation. The clock is ticking.

This year's pension winners and losers

YES: Mike Morrison, head of pensions development, Axa Wealth

When I first started in pensions, defined benefit (final salary) pension schemes were very popular with employers and employees. Since then a combination of factors, including increased longevity, regulation, legislation and difficult investment conditions, have made such schemes too cumbersome and costly for most employers to run.

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But the alternative, defined contribution or money purchase schemes, are subject to the volatility of the investment markets.

There have been numerous research pieces showing the state of pensions saving in the UK: in just the last couple of weeks we have seen headlines saying only one in three workers has a pension and 13.6 million people do not have any pension savings.

Against this backdrop, to think that public sector pensions can escape without reform could be considered somewhat naïve. In comparison with the private sector, public sector schemes still remain attractive, and the move to some form of career average benefit could actually benefit some workers.

Increased contributions for those earning over a certain salary level will be an extra cost, especially in the time of a public sector pay freeze, but it is important to focus on the value of the final benefits as opposed to the cost today.

As for having to work longer: an increase in pension age is something that is a reality for all as we live longer and the cost of pension provision increases. Why should public sector workers be exempt?

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Your Comments

I am a single parent who since coming off income support in 2000 has worked for the department of work and pensions and for one of the County Council's in England.

I find all of this amazing that people have this idea that public sector workers are paid huge wage packets, my wage has not increased for the last 3 years yet the cost of living and children have increased I take home approx £1,200 per month and pay around £120 per month into my pension my outgoings for electric, gas, insurance, car (essential for work), water, phone, council tax and mortgage come to around £850 per month before shopping, unexpected expenditure and birthdays plus Christmas etc.

I went to work to set an example to my children and not to have the stigma that is attached to being a single parent on benefits at this moment in time in my circumstances I would actually be better off on benefits than working, how can this be right.

Now I am being told that I have to pay more into my pension each month for a longer period of time and will not actually benefit from this and I can not do anything about it except strike and if I do that I loose one fifth of a weeks wages and the same on my pension and my continuous employment record will be affected as well, which as a single parent I just can not afford.

My job is currently under threat and I will not know until February 2012 if I actually have one, it is just as hard for some public sector workers not all are fat cats although looking at the restructure for our council there will be a time when there are only chiefs here because all the indians would have been shot in the back.

Don't get me wrong I have a lot to be thankful for in my life and I do feel I am lucky for what I have but I have worked bloody hard for it and to all those people who seem to think that us public sector workers have it easy come and have a go at my life for a while I should really work in a circus the amount of balancing and juggling I do.

All public sector pensions should be money purchase (defined contribution).

Let's face it - except in the health service and for high level individuals, public sector employees are now better paid than their private sector peers but enjoy amazing pension benefits that people like me can only drool over.

I say let the coddled, cossetted public sector experience the pain of private sector pensions, and we can spend the saved taxes on services, not the inflated salaries and pension perks of the privileged few.

The company i work for stopped their final salary pension scheme 4 years ago. A new pension scheme was started and our contributions increased from 6% of salary to 10%, and the new scheme was not as good as the final salary one.People are living far longer lives nowadays and the final salary pensions are just not sustainable. Public sector workers need to waken up and join the real world

I have a number of investments now I have retired. Just one has lost money 0 it is with AXA. Says it all really.

The savage truth is that the public sector pensions have been viable for a long time. The arguement that they are now unaffordable is rubbish. Everybody, private and public sector should be entitled to a decent pension at retirement. I would like to see a state pension at 60% of the wages level paid for by national insurance contributions (incidentally they already take enough for that!) and a top up of at least 15% of the wages level funded by employee (6%) and employer (10%) contributions. That way we would have no more pensioners freezing to death or starving themselves to pay their power bills!

Interesting asking any representative of the Finance industry to comment on pensions, especially public sector pensions. To start withy the finance industry's credibility with the majority of people is at an all time low, with very good reason. We are here were we are today, because of poor regulation, uncontrolled speculation, greed and manipulation by the market by the banking, insurance and finance sectors. Trying to say that wa syesterdays problem won't work, it is not easy to sweep over $27Trillion dollars of worldwide debt under the carpet. Neither is it acceptable for private companies having amde poor investments because of greed to be bailed out by the taxpayer. Companies and banks had better start to realise very quickly that the era of the free lunch followed by the free bailout is at an end, If you have insufficient funds, your insolvent and should go bankrupt. Your shareholders will have to eat the loss, tough, you want a free market you have a free market. Which brings me on to public sector pensions. A contract i s binding in law whether issued by a government (public sector) or by private companies and individuals. Pensions are a contract between an employer and an employee, any alteration to the contract has to be agreed by both parties basic contract law. The private sector says that public sector pension costs are unsustainable, which is double speak for the private sector is not going to improve private sector pensions because it will effect profits and our owners and shareholders profits. Tough, your choice, but stop trying to make decions about pensions in the public sector just because they show up the private sector for what it is, not very good as employers when it comes to their employees. Remember the slogan Investment in people? What a joke, lip service to decent employment standards. Should have read Investment in people in the top 5%, at least that would have been trutful.

It is high time that public sevctor workers were treated in EXACTLY the same way as those in the private sector. Their pension schemes should be no more advantageous than private schemes, they should be funded very much as private schemes are, in that the general public should not be forced to pay such a high proportion of the cost. Public fund employer/employee ratio of cash paid into their schemes should be similar to that in the private sector. I hear them shout that they should be duly rewarded for a lifetime of service. But surely your truck driver, your shop assistent, your computer programmer are all serving the public too?
When Gordon and Tony, fresh into government, crept behind the sofa and ******* on the carpets of the private sector pensions, they sparked the end of most private final salary schemes, and sent them further into huge deficits. Time also to end the public sectyor scheme and have them too convert to one of the modern cash purchase schemes.
The current government action is good, but nowhere near enough. The public sector are still far too cosseted.

I work for a Housing Association. Some of the staff were transferred across from the local Council when the Council's housing stock was transferred to it. The ex-Council staff's pension has remained unchanged but those of us not ex-Council have seen our Pension payments increase by 50%!!. Not really fair is it? Those with Public Sector pensions need to accept the real world!

Part of the problem with this whole saga, is that a blanket discussion about fairness is rather daft. There are many schemes within the public sector. Some contributory, some not. Some allowing you to leave at 55, others much later. It is therefore clear that we are not comparing like with like.

Personally some of these pensions are too generous, and put too much of a drain on the tax payer for my liking. Other schemes (LGPS for example) is fully self funded. Only a dictator would argue that this should therefore not be tampered with (so some naive comments by some of you - if not just downright mean!).

It is also rather daft that no-one mentions the tax breaks with private sector schemes. A higher rate tax payer receives 40% relief. Do I want to fund that (that is either direct relief or a top up from the government). That seems to be very beneficial to the rich to me.

So the bottom line is that no-one could or should simply slag of the public sector. Get your facts and figures in order first!

 Slashing public sector pensions is a non-starter. They are entitled to the best pension their scheme can afford, and the crucial word is  afford . That said and in view of people living longer it does appear time to change from a final-salary pension to a defined contribution. Yes they pay contributions and taxes however their contibution is much smaller than the rest of the taxpayers pay on behalf of the public sector and most of whom do not enjoy the same benefits.
If Public Sector employess are to enjoy their current level of benefits then fine provided their retirement date matches the state retirement date and their contibutions are proportionately increased. Your article did say 13.6 million people do not have pensions savings. Perhaps the Unions could remember this when negotiating for teachers etc who do not badly thank you!!

Hhha! I am a public sector recent retiree (final salary scheme), who held an averagely paid managerial position for over 10 years and various grades/roles in the previous 20 years = 30 years. Many, including colleagues, friends and family, conveniently believe and comment that I received a huge lump sum/package + a monthly pension equal to 2/3rds of my income. I can assure you that neither is true and that my pension is nowhere near 2/3rds of what my employed income was. In fact it is nearer 1/3 (34%of gross), way under 1/2 (43% of net).

@ CHRISWA (30.11.11) - Absolutely. Spot on & well put.

 I am a public service pensioner who paid extra throughout my working life to upgrade my pension - and widow's pension if that becomes necessary- to a reasonable degree since I could not attain 40 years service.  While I do not suppose that there is much threat to me individually, I would not agree with retrospective amendments to what people in good faith have been working towards.  For most of my working life, private sector pensions were more generous than public and were earned quicker.
Neither should any further changes for the worse be made by government or parliament until MPs reduce their own very generous pensions.