Public sector pensions have long been a target of attack for business leaders. However, the private sector should keep quiet and focus its energy on supporting its own workers in their retirement
One of the more unpleasant reactions to the economic downturn is the ideological attack on public sector pensions.
Virulent in nature, ungenerous in spirit, these attacks see the country’s business leaders engage in a bout of great hypocrisy. A classic case of: ‘Do as I say, not do as I do.’
One of the indicators of the moral worth of a society is how well it treats the older population — and pensions are fundamental to this. This was the impetus behind David Lloyd George’s introduction of the state pension last century.
Pensions are an integral part of a civilised society, but business leaders are always harping on about the costs, whether in their own industries or in the public sector.
However, they spare themselves such lacerating invective, as the TUC’s 2008 PensionWatch survey reveals only too starkly. The survey of 346 directors in 102 companies revealed that the average accrued pension was £201,655 per year. Yet, at the same time, 60%—70% of private sector final salary schemes are now closed to new entrants.
Private sector employers should greatly improve their own schemes rather than attack public sector pensions, which are a good template for how progressive democracies should approach this issue, especially as we are all living longer. And when it comes to public sector pensions, a number of myths need to be dispelled.
First, public sector pension provision is self-funding — the money needed is covered by the contributions made by employers and employees. This scheme is not asking for a bail-out from the government, unlike the distressed bankers.
Secondly, the cost of providing a public sector pension is the same as for a typical final salary scheme in the private sector, according to a recent report by the Pensions Policy Institute.
Thirdly, the government has negotiated with trade unions to raise the retirement age for new entrants from 60 to 65 for public sector schemes; to increase average member contributions; and to cap the increase in government costs.
However, a change of government at the next general election could threaten this agreement as both the Conservatives and Liberal Democrats have opposed it. They have called for a retirement age of 65 for all, whether long-serving staff members or new recruits.
The change in retirement age was part of a negotiated package of changes that maintained the essential basis of the schemes and sought to place their funding on a sustainable footing.
The opposition parties’ call for ‘independent inquiries’ and ‘greater parity with the private sector’ is just a smokescreen for a distasteful menu of lower benefits, an end to index-linking and even a move away from a defined benefit (final salary) basis for some or all staff.
The CBI should campaign against private employers that provide little or no pensions for their employees, leaving them poor in retirement and dependent on taxpayer-funded means-tested benefits.
Business should not abdicate its responsibilities and let the state pick up the tab for its own parsimony, particularly as industry is always complaining that the state is taxing it too heavily.
The CBI last month called for greater transparency on public sector pensions, which in principle is not unreasonable. However, what it means is that public sector schemes should be valued and managed like private sector schemes. The next step from that is that the public sector should downgrade and even abandon final salary pensions in the same way as private sector employers have.
There is a fundamental difference between an unfunded scheme backed by the government and a funded scheme backed by a private employer. The government will be in existence for the duration of a pension scheme and in a position to fund its liabilities — a private employer might not be.
Private sector employers are being forced to fund their schemes on a conservative basis to reduce the risk of schemes not being able to meet liabilities. This funding basis goes beyond what experts believe those pensions will actually cost. Businesses are also having to respond to deficits arising from what, hopefully, is an unnaturally low level of share prices.
Public sector schemes are not under the same pressures and can and should continue to base funding on a best estimate of what their true costs are and to ignore market fluctuations. The CBI argument for transparency does not lead to the conclusions it draws. Reforms have already been agreed to public sector schemes after taking full account of funding pressures.
Decent pensions should not be just for the privileged elite in business and the City. They should be for all working people.
Gail Cartmail is assistant general secretary of Unite
