I support those on strike today.
I think they are right to protest about the plans the government is making to reduce pension rights. They are arbitrary. Worse, as Nigel Stanley of the TUC pointed out yesterday when writing for the False Economy blog, all they really amount to is a pay cut. His argument is so well put that rather than seek to create my own I reproduce it here, I hope with his permission since (for the sake of disclosure) I make it clear he and I occasionally work together on TUC matters:
"Few people understand how pensions work. The government is relying on this in their attacks on public sector pensions. Ministers claim that they are gold-plated, unreformed and unsustainable. The right-wing press join in by saying that it is unfair that private sector workers' tax should pay for public sector pensions.
Yet what the government is doing is simple. It is asking public sector workers — already facing a two-year pay freeze, job losses and inflation running higher than it has for more than a decade — to make a further, and even more unfair, contribution to reducing the deficit.
They are doing this by trying to impose an arbitrary extra pension contribution of three per cent of pay on the public sector. This is not a pension reform — it is simply a pay cut.
This comes on top of significant reductions in the value of public sector pensions that blow away the claims that they are unreformed or unsustainable.
Changes negotiated with the previous government reduced the value of public sector pensions by 10 per cent through a range of changes. In particular, under so-called “cap and share”, members agreed to first share — and then fully bear — the costs of any unexpected increase in longevity. This is due to add a billion pounds of extra member contributions.
The National Audit Office closely examined this package and concluded:
“In addition to saving significant sums of money, the changes are projected to stabilise costs in the long-term around their current level as a proportion of GDP.”
So even before anything done by the coalition government or recommended in the Hutton Report, public sector pensions had been both reformed and made sustainable. This is not union assertion, but the hard-headed view of the National Audit Office.
On top of these negotiated changes, the coalition has made a further attack on the value of public service pensions by replacing the Retail Prices Index that has always been used to uprate pensions with the lower Consumer Prices Index. This will further reduce the value of public service pensions by 15 per cent — so we have a cut of 25p in the pound if you combine this with the negotiated changes.
Changing indexation breached the commitments of both coalition parties to protect accrued rights. This is pensions jargon for the pension you have built up in the past. Scheme members made contributions to what they thought was an RPI-linked pension; now they have had its value reduced by 15p in the pound at a stroke.
Yet ministers persist in saying that public sector pensions are unaffordable. The Prime Minister said on Tuesday that the system was in danger of going broke. But this chart in the Hutton Report shows that public service pensions payments will decline as a share of GDP — even before any of the changes proposed in Hutton bite.
Treasury Minister Justine Greening was completely unable to argue that pensions were unaffordable when this was put to her on the Today programme.
No doubt this is exactly the kind of assertion that the Public Accounts Committee had in mind when it said: "Officials appeared to define affordability on the basis of public perception rather than judgement on the cost in relation to either GDP or total public spending."
So public sector pensions are sustainable. They have changed.
That leaves the assertion that they are gold-plated. John Hutton was clear that this is untrue:
“The Commission firmly rejected the claim that current public service pensions are ‘gold plated'.”
The figures bear him out. In the big four national schemes the majority of pensions paid are less than £5,600 a year. In the Local Government Scheme half get less than £3,000.
Of course a few very well-paid public servants get considerably more than this. But there are not many of them. And unlike the private sector, wheretop boardroom pensions are solid gold, not just gold-plated, top public servants are in the same scheme as their staff.
Here is the distribution of civil service pensions. As can be seen the vast majority are well-short of even being modest.
What is true is that many in the private sector get a raw deal — the private sector is now a pensions disaster area. Two out of three private sector workers get no employer help in building up a pension. Even the better employers have not only closed salary related pensions, but significantly cut their contributions to the riskier replacements.
But the answer is not to level down by removing pensions altogether from two-thirds of nurses; it is to improve pensions in the private sector. And it is telling that those so keen on attacking this unfairness never talk about the costs of pension tax relief, currently running at £35 billion a year — more than the cost of public sector pensions and heavily skewed towards the rich.
It is no wonder that public sector workers are angry. One union on strike has never taken such action in its history before. Unions know that pensions are long-term arrangements that do change over time. Negotiations are common in private and public sector. But the government's agenda seems to have little to do with pension reform. This is simply making public sector workers — most of whom are modestly paid — take on an ever greater part of the burden of closing a deficit they did not cause."
Nigel Stanley is Head of Campaigns and Communications at the TUC.
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Wishing the strikers good luck. To-day – ashamed to be a member of the Labour Party. Tessa Jowell this morning said Labour had negotiated when in office the pension reform without strikes,does that not tell her something is wrong with these negotiations.
Its is not a pay cut – it is simply asking you to save a bit more to pay for your own retirement. The rest of have had to do this forever.
You ignore the fact that the government does not actually invest these ‘savings.
So you’re wrong
It’s a pay cut
Gordon Brown raided our pensions in 1998. There was no warning, no negotiation no protection for lower paid and the pension savings right back to the start of our schemes were affected – more than 20 years in my case. No such problems for the public sector in current situation. And annuity rates, on which our pensions are based, are constantly changing to reflect longer life expectancy. Welcome to the real world – except that you still will have a much more generous pension per £1 paid into it than the private sector.
Respectfully – that’s rubbish
There was no retrospective change
And he changed the tax system – not the pension system
It cost pension funds at most £5bn a year
They lost £300 bn in 2008
Brown treated pensions fairly – remember most funds were also in surplus at the time
Not allowed to reply to your nonsense – so doing another reply to my last comment. I have no problem with paying tax on my income – pension or otherwise. But Brown was taxing my pension savings which reduced my eventual annuity value and therefore reduced my pension. You probably have no idea how pension systems actually work in the real world – but it is done by investing in funds that hopefully grow to produce a lump sum to buy an annuity. If the value is reduced because of a greedy chancellor – or for any other reason – we get a smaller pension. Its tough out here!
How does your comment “most funds were in surplus” have any relevance to that – and even so why does that give the right to Brown to tax it. It was retrospective because every £1 invested from the start of any pension scheme was affected – Brown did not allow funds already built up to be excluded. Nor were those on small incomes allowed any exemption. Get real as someone once said.
I am sorry to say that
a) I think I do know how pensions work
b) You are wrong in your claims
But let me be much more blunt: tell me why it should subsidise your savings in the first place?
No doubt you heard the interview on the Today programme this morning between Maude, Mark Serwotka and Evan Davis. If you didn’t have listen. Maude and the Tories exposed for the liar’s they are on this issue.
Is it really a pay cut or is it in fact a reduction of the taxpayer subsidy for public service pensions.
A reduction that still leaves public sector workers receiving a larger tax-funded pension subsidy that those who are in the private sector?
So the private sector is crap and you want us to copy it
Have I got that right?
Private sector would love to have final-salary pensions. But who will pay for it – the state in the form of higher taxpayer-funded subsidies?
I don’t think so?
If the private sector can’t meet its costs then it’s not profitable
Paying for employees in their old age is one of its costs
And it’s not true they can’t pay
It’s a refusal – which is very different
Richard
You’re right, private sector pensions are largely poor and a ‘race to the bottom’ is not a satisfactory way to deal with this. However, whilst one could legitimately argue that large employers could provide proper earnings-related retirement benefits if there was a will, it’s obviously unrealistic for small and medium-sized entities to do that.. and that is where the majority of private sector workers are employed. The state is, of course, a huge employer, so can share the risks of it’s pensions across millions of workers.. and it has the rather wonderful luxury of being able to raise taxes if it finds itself unable to meet future obligations. It’s a simple fact of life that private companies can’t do that. This is a debate that can’t be had unless people recognize the fundamental differences between ‘the state’ and private enterprise.
Then, add the problems of the private pensions industry that you often write about.. the money that goes into it is rarely ‘invested’ in anything at all.. and that’s a problem that can’t be fixed by those employers we would like to see providing better benefits. It does, of course, need to be fixed.
I do have a problem with public sector pensions, and the problem is that I think it’s unfair that one group of workers gets their retirement, underwritten by the state, and that’s not available to everyone else.. and whilst some private employers could provide it if there was a will to do so, most cannot by simple virtue of their scale.
The answer, however, is not to take those benefits away from public-sector workers… it’s to extend them to private sector workers with a return to an effective state-guaranteed earnings-related pension scheme which everyone, by law, is eligible to join.. with a legal requirement for employers to make contributions at appropriate levels. The only restriction I would ask for would be a limit on the value of the pensions based on a link to average earnings. The state shouldn’t guarantee earnings-linked benefits for high earners, public or private… they can make their own arrangements if they want more than the average.
The implications of this for the economy would, I’m sure, be massive. What effect would it have if, at a stroke, employment costs increased by 10-20%? Where would the incidence fall? How would all the contributions be put to use? How would it impact our competitiveness? I assume no other countries have such a scheme, but I’d be delighted to be corrected and shown that it’s working brilliantly elsewhere.
With regards to your premise.. I do disagree.. unless you are also going to talk about the massive pay-rise public-sector workers get every time annuity rates drop again, or the market slumps.. because relative to those who have no choice but to bear that market risk, a massive payrise is exactly what those workers were getting whilst others saw their retirement benefits fall through the floor between 2007 and 2009.
At the moment a teacher (say) has around 22% of salary put aside for pensions (6% employee, 16% employer). If a private-sector employee put that aside, however it was split, they would not get the same benefit without prodigious market growth (and let’s not pretend that’s going to happen). So there is a shortfall, and a private employer wanting to provide that same benefit would need to put more aside. The debate is, therefore, about who bears the cost, employee or employer, given the current share of the contributions, I don’t think it’s unreasonable to ask the employee to stump up some extra – although I do recognize that, in many public sector schemes, they have already made sacrifices. Alas, if we all insist on living longer, but not working beyond 65, something has got to give and we’ve got to accept losing something now so that we get something later.. and that applies to public and private employees alike.
Apologies for length.
It’s not a reduction in taxpayer subsidies of public pensions. Civil servants are paid significantly less than those in comparable positions in the private sector – around 8% less. The pay off for that has always been our pension arrangements.
It’s all about total reward. We’re paid less, but we have a better pension. Take the pension away, and it amounts to a pay cut.
Seriously, what part of that don’t you understand?
One more thing – don’t forget that, as a civil servant, I’m a taxpayer too. Note that I don’t have children, but you don’t hear me bleating about other people receiving child benefit from my taxes.
Why people seem intent on spreading the misery instead of seeking fair treatment for all is beyond me, it really is.
JayPee – are public sector salaries a “taxpayer subsidy” too? The taxpayer pays (indirectly) for public sector pensions, and salaries, because the taxpayer is (indirectly) the employer, and these are part of the remuneration package which the employer agreed to provide to public servants.
I was a nationally elected official in a public sector trade union for ten years. During that time I took part in many rounds of pay negotiations. Joint management / union pay comparbility studies were regularly undertaken to inform these negotiations, and they regularly showed that our salaries were significantly lower than our private sector comparators. When we sought to make this the basis for an argument for higher salaries, we were always met with the same argument: “Ah, but you must look at the entire remuneration package, including the pension. Your pension is more generous than those enjoyed by the private sector comparators; so when you take this into account you will see that your overall remuneration package is not so very much worse than your comparators in the private sector”.
Now, you cannot have this both ways.
EITHER public sector pensions and salaries should be looked at in the round, as a total remuneration package, for all purposes; or they should be treated separately and individually for all purposes. The taxpayer / public / government/ call it what you will cannot insist that generous pensions be taken into account to justify meagre salaries, and then refuse to take meagre salaries into account in order to argue that generous pensions cannot be justified.
Back in May 2010 you posted here generally advocating more inflation here: http://www.taxresearch.org.uk/Blog/2010/05/06/inflation-doesnt-solve-everything-but-it-sure-can-help/
At the time I pointed out the corrosive nature of inflation on those with sticky incomes — wage earners, pensioners etc. It’s effectively a pay cut, lowering living standards, hitting the poorest hardest. Fifth form economics stuff.
You didn’t disagree with the (obvious) point I made but your comment #7 was quite dismissive of the problem.
It does seem that some types of pay cuts bother you, others don’t. Can you please explain the difference?
I find it amazing the detail in which some of you log all I write
For the record: I remain sure inflation is needed – but it has to be matched by wage rises
I never said I wanted inflation to push people into poverty
I want it to wash bad money and over pricing of assets out of the system
Not sure which of my claims you disagree with – nor what you mean when you ask why “it should subsidise my pension”. 40 years ago I was told that anything I invested in my personal pension would be tax free and that any growth would be tax free. In return I had to buy an annuity to produce a pension, which would then be taxed as income, in order to reduce my reliance on the state during my retirement. Some way into that investment Brown changed the rules and the value of my pension was reduced substantially as a result.
To produce a pension equivalent to a public service worker I would have to pay about 20% of my income into a pension fund – totally unrealistic.
I’m sorry – but those facts just aren’t true about Gordon Brown and his pension changes
And you didn’t answer my question
Please don’t comment again – I delete nonsense
I’m sure someone must have pointed out that rasing public employees’ contribution from 6% to 9% is not a 3% rise but a 3 percentage point or a 50% rise.
“Civil servants are paid significantly less than those in comparable positions in the private sector — around 8% less. The pay off for that has always been our pension arrangements. ”
This is simply not true any more. Public sector works now enjoy slightly higher salaries than their private sector counterparts and significantly higher pensions.
The question asked about the teachers strike should really be: Is it fair that teachers receive 14% employer contributions when virtually no one else does?
Or would it be fairer to ask those who benefit from this largesse to pay in just a little bit more if these kind of schemes are to continue?
I utterly dispute that
Average pay in the civil service is higher than average pay in the country as a whole
But the skills engaged are considerably higher still
And the fact that by and large the civil service does not discriminate on grounds of gender explains the rest
As usual you’re arguing that pay should be reduced
That’s not an argument – that’s called exploitation
Oh – and try teaching and see how you get on
Most private sector jobs have the advantage of being easy and stress free compared to the public sector
“Most private sector jobs have the advantage of being easy and stress free compared to the public sector”
Ok, I’ll bite.
There are, what, 8m people employed in the public sector and 20m employed in the private sector?
When people say things like that (or, as is far more common and equally idiotic, the opposite) they are insulting millions of people. People they’ve never met, doing jobs they know nothing whatsoever about.
For all your anger at the way those at the top of the private sector conduct their affairs, Richard, you know very well that the majority of people, public and private, are decent ordinary working types who face a whole raft of challenges and pressures, coming from all directions, and deal with them as best they are able. You do most of them a great disservice by suggesting that they have it easy.
Say what you like about the evils of private enterprise, but you know that the power is concentrated in the hands of very few, and the rest… who, I thought, were the people that you believed in standing up for, have just as tough a time of it as anyone else.
Respectfully – I have seen a great deal of both
My comments are based on observation
As an entrepreneur and employer of many in the private sector
As an employer in the public sector – especially in education where I have quite a lot of experience
And now with some insight into what medicine, social care and other related jobs are like
If you want a lower stress life there’s no doubt where to go – the private sector: but of course there are always exceptions, and I accept it
But that does not invalidate the observation
I think that was objective
There are many public sector jobs which have no genuine private sector comparatives. I’m thinking of the police force, firefighters, and people in some of the sectors you mention (I think we can both agree that those private health and education providers that are exceptionally well-funded and only serve the wealthy are not comparable to the state school system and the NHS) and I know that these are incredibly difficult and stressful. But would you say that, for example, someone who works in a private care home has it easier than someone who works in a state-run care home? Because I think that they do exactly the same work. The private sector is full of people who do work that was previously done by the public sector.. did their lives get easier when their jobs were privatized? If anything I’d think they got harder because of the ‘rationalization’ required to deliver the private-sector margins… but, conversely, jobs in the remaining state concerns probably got tougher too as they’ve had to compete to survive without also being cast off.
Whatever insight you have, and I don’t dispute that you have plenty, I still find your use of the word ‘most’ to be objectionable, not objective, because you’re talking about millions of people. Even if 60% of private sector jobs were demonstrably easier than anything in the public sector, we’d still be talking about as many people in the private sector having it as tough as people in the public sector.
Perhaps you attach different value to the pressures. A teacher who has to deal with a difficult class can be fighting all corners trying to deliver a social good… how does that compare to a lowly call-centre worker who is monitored every second of the day, has to deal with angry and abusive callers all day, and is living under the constant threat of losing their job if they don’t meet strict productivity targets. Yeah, the call-centre person works for a bank, and banks aren’t run for the good of society… but that individual is doing the only job they could get, is doing it for a measly wage and no benefits, dreads every day, and doesn’t share in the spoils of their employer.
How do we compare the two? I say we don’t, I say we agree that they’ve both got it tough and we shouldn’t rank them or generalise about people based on who is paying their wages.
Lee T
Look I apologise if you take offence: that is not my intention, and I’m sure you realise it.
I am making what I think is a fair comparison, and which is, I admit, wholly contrary to the normal run-of-the-mill commentary on the situation, which tends to be the exact reverse of what I’ve stated. If I overstate my case, I apologise. Sometimes it is necessary to do so to make a point. If I’ve done so in a way that causes you offence, I repeat, I regret that. I am, of course, generalising: it could not be otherwise from the context in which I’ve written. I also quite clearly made the point that I know that there are exceptions to the observation I made, and I know that is true.
You and additionally highlighted some situations where work can be compared between the two sectors: in those circumstances presuming that the conditions of employment are broadly similar (and given that even in the state sector many staff are outsourced through agencies this is very often this case) then of course the point you made about compatibility in these circumstances is correct.
However, I am also quite sure that the vast majority of the professional people working in the private sector, who are amongst the most prone to criticise the state sector, having no idea of the stress, pressure, obligation and professional undertaking that those who work in a great many of the professional roles, in particular, in the state sector have to endure to earn incomes which are very often lower than those that the private sector can provide. this is not because of the conditions of the employment, but because of the roles they undertake. That was at the core of what I was saying. I also happen to think that many of the lowly paid jobs in the state sector ( whether papal directly or through outsourcing – and candidly in this regard whether a person is employed in a state run private nursing home, or in one where the vast majority of the income comes from the state with the intermediate employer is within the private sector) undertake jobs which are generally more numerous than many equivalent roles in the private sector where pay is broadly similar.
I stress that this does not diminish the issue of pay, wage poverty, inequality, and resulting stress that arises in the private sector as a consequence of many of its employees being undervalued for the contribution they make both to their employer’s well-being, and to society at large.
All I was saying is that the general view that state sector employees have an easy time is in my opinion fundamentally wrong. You sought to extrapolate that further and if it was my error that gave you opportunity to do so, then I apologise.
Thankyou Richard. That helps a lot.
I agree wholeheartedly that the traditional narrative, which is the opposite of yours, is ignorant and wrong, and needs to be challenged. And you’re right to challenge it. I just don’t want to see it reversed 180 degrees.
Public sector worker vs private sector worker is a phoney battle being inadvertently played out by the victims of inequality, for the amusement of those who are profiting to the detriment of both.
What most Brits tend to overlook is not just the meanness of our state pensions (the lowest in the EU), but also just how inefficient our occupational pension scheme is compared to the rest of the EU—largely because Thatcher gave it to the City to run. If you don’t believe me, read this piece by IDS in the Telegraph! http://tgr.ph/kCB1Xa