As economists we are opposed to the public sector pension reforms proposed by this government and Lord Hutton.
Public sector pensions are far more efficient than private pensions. The net cost of paying public sector pensions in 2009/10 was a little under £4 billion. The cost of providing tax relief to the one per cent of those earning more than £150,000 is more than twice as much. The total cost of providing tax relief to all higher rate taxpayers, on their private pensions, is more than five times as much.
By changing pension calculations from the RPI measure of inflation to CPI, pensioners (in all sectors) will be made hundreds of pounds worse off, with the loss accumulating as pensioners get older. The vast majority of economists and statisticians recognise that RPI is a more accurate inflation measure.
Taken as a whole these changes are a substantial disincentive to save because they will encourage people, already burdened by student debt, high housing costs, and the need to save when the social security safety net is being withdrawn, to leave public sector pension schemes and abandon provision for their old age altogether. This contradicts Iain Duncan Smith’s words earlier this week about rewarding saving. If public sector workers opt out of their schemes because of rising costs, it could leave some schemes in jeopardy.
The government claims these changes will help reduce the deficit, but they will take money out of the pay packets of today’s workers and from tomorrow’s pensioners, suppressing demand and damaging any prospect of recovery, as well as increasing pensioner poverty.
On public sector pensions, as on so much else, the government has got it wrong.
Richard Murphy, Tax Research LLP
Andrew Fisher, LEAP
Howard Reed, Landman Economics
Dr Stephanie Blankenburg, SOAS
Professor Prem Sikka, University of Essex
John Christensen, Tax Justice Network
Professor Gregor Gall, University of Hertfordshire
Colin Hines, Green New Deal Group
Bryn Davies, Union Pension Services
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Wouldn’t it just be easier to focus on investment and education today to make sure that the pie is so much bigger in the future.
Why do we keep juggling around with the numerator rather than concentrating all our efforts on making the denominator big enough so that nobody is without.
Has the government actually said anything about pensions yet? I thought we had just had a former Labour minister delivering recommendations that the Government may or may not follow.
What Government actions or decisions are you complaining about.
Or are you jumping the gun here? 🙂
@Adam
Silly me
Of course they have no intention of acting on it at all
@Neil Wilson
True
Let’s get the economy going and the pension problem is solved
That’s what I also say in Making Pensions Work
Richard, Peter Wilby has an interesting blog on today’s The Staggers (New Statesman rolling blog) in which he suggests that public sector pensions are ‘the biggest barrier to further privatisation and outsourcing of public sector services’. Public sector reform following the ‘divide and rule’ outcry from private pension holders is therefore a further step in dismantling the welfare state. We need to be doubly cautious about these ‘reforms’, namely to consider the adverse impact on future public sector pensioners and also the move towards the small state.
@Teresa Harding
Thanks for that – blogged it as you drew it too my attention
Peter Wilby is spot on – it’s a also a point made by PCS General Secretary Mark Serwotka on Comment is Free: http://www.guardian.co.uk/commentisfree/2011/mar/10/lord-hutton-public-sector-pensions-report
@Adam
Yes, the government has said rather a lot. The CPI / RPI change was announced in the June Budget without consultation, and an order has been laid in Parliament to effect the change (no debate, no vote).
Secondly, Osborne said in the October CSR statement that public sector pensions will be cut by £1.8bn on top of existing changes to help “filling the hole in the public finances”
Thirdly, Osborne has already written to USS scheme members (lecturers and college staff) telling them they will have to make extra contributions of 3% for a worse pension. Understandably they’ve voted for strike action later this month!
The coalition government is destroying public services, jobs and the economy with destructive policies. They are robbing our society of future sustainability – taken from our pockets and our future and instead rewarding the bankers and their like.
Public sector workers face massive increases in pension’s contributions when their pay is probably frozen. That is a pay cut.
The reality facing loyal public sector workers includes massively higher pensions contributions, working for years longer – for a much worse pension – and all at a time cuts threatening their jobs, which will then be axed on the cheap.
Index linking is reduced from RPI to CPI cutting pension benefits.
All of this is being justified because public sector pensions and supporting an aging population is unacceptable.
Let’s get a few things right:
There is an expected 5 % increase in age related expenditure over the next 40 years. That is £80bn extra annual spending in today’s money. Precisely zero of this is down to public sector pensions.
Government Actuarial Department figures of the cost of public sector pensions as a proportion of GDP show that they will reduce not increase over time.
So what do the ConDem cuts mean?
Increased unemployment, increased housing waiting lists, millions of disillusioned young people, the destruction of the education system, the decimation of public services the most vulnerable in our society need, a police force that is so resource short it ceases to function adequately, a defence capability no better than that of Sri Lanka and public servants condemned to poverty pay and poverty pensions.
There is an alternative. Join the TUC rally on the 26th March 2011 in London.
http://marchforthealternative.org.uk/
“Public sector pensions are far more efficient than private pensions. The net cost of paying public sector pensions in 2009/10 was a little under £4 billion. The cost of providing tax relief to the one per cent of those earning more than £150,000 is more than twice as much.”
I don’t know what point the signatories are trying to make here because private sector workers outnumber public sector workers by four to one.
@Tim Cooke
We weren’t referring to private sector ion general – but to a very distinct and tiny part of it
@DefenceCutsCost
See you on the 26th!
@Richard Murphy
All I’m saying is that having a go at them now is a bit early. Can’t you wait to hear what the Coalition will say before you accuse them of getting it wrong?
@Adam
That’spolitics
I’ll not take any preaching from any MP (or former MP elevated to the Lords!) about how my public sector pension is a burden on the public purse.
ALL the public workers should go on strike immediately to have their pensions upgraded to receive similar benefits (pro rata of course) to what former MP’s receive in ‘pensions’.
Those buggers are getting their platinum plated pensions at goodness knows what age whenever they decide to leave or are turfed out by the electorate AND we are all paying for it? 😡
Richard is my assumption that the tax relief is at the higher rate correct ❓
@TonyB
Yes – and I know the rules have changed – but most people don’t pay £50,000 in so it doesn’t change much
And we have no better data yet