Friday, 10 August 2007

They're gonna come for your pensions...

Are you a public sector worker with an occupational pension? If so think very hard next time you vote. The unrelenting message from the Right (and sometimes the Lib Dems) is that public sector workers' pensions are too generous. The Tories have talked openly about "reforming" them.

Today's Telegraph features a typical rant from the Garry Bushell of business journalism Jeff Randall. In it he trots out the usual attacks on public sector pensions, and as usual makes some very basic errors.

For example he says that the Pensions Commission called for the retirement age to be put up to 68 in the long term. Not quite, the Commission was referring to State Pension Age - the age at which you draw your state pension. If SPA goes up to 68 it affects everyone, in the public and private sector. He gets it wrong again when he says the deal over public sector pensions allows existing scheme members to "retire" at 60. No Jeff, it means existing members can draw their pension at 60 - not the same thing. He also fails to mention, presumably because he doesn't know, that a large number of private sector schemes also allow their members to draw their pensions at 60.

Because he gets these basic facts wrong, he seems to think that public sector workers can retire at 60 whilst the rest of us work on to 68. Aside from the fact that he has confused pension age and retirement age, he obviously hasn't seen any stats on average retirement ages. I will try and dig some stats out but when I last looked at this they showed that average retirement age in the public sector was HIGHER than that at large companies in the private sector. Guess what Jeff, the private sector sometimes wants to boot out the oldies. And one reason why public sector workers have higher retirement ages is that some of them need to work past pension age to have a decent income.

We need to be very wary of these attacks because they represent an attempt by the Right to get private sector workers to agitate to undermine the conditions of those in the public sector. Make no mistake about this - the labour movement suffered a major setback in the private sector over pensions. Most final salary schemes have closed and they have typically been replaced by much less generous money purchase schemes. This is effectively a significant cut to the total package on offer.

But the cutbacks in the private sector should not be used as a reason to attack public sector pension schemes.


Michael said...

Public sector pensions are completely unsustainable. Unlike private pensions, no actual pot of money exists that has been invested for each person who will eventually receive a pension. Instead, this year's contributions go into the general treasury expenditures, and current retirees have their pensions paid by today's taxpayers. In the long run, with more people retired and fewer people working, this is not just undesireable and unethical, but actually impossible to sustain.

Privatise pensions, I say, and abolish government-forced "retirement ages", and then we won't get the mess we have now, and the ticking time bomb we have waiting.

Tom P said...

Hi Michael

Perhaps not surprisingly I don't agree with much of that.

First let's be clear that the local government pension scheme is funded, so it's exactly like a private scheme in that respect. Secondly, if you don't like pay-as-you-go schemes would you privatise the state pension and S2P too? They are run on the same principle. And the state benefits make up the lion's share of most pensioners'incomes.

PAYG schemes can be made more affordable by either reducing the benefits (which the Tories did by scrapping the earnings link), making people pay more, or making them work longer. In respect of the state pension the govt aims to put up the pension age, which will enable it to manage the cost.

In any case, funded pensions are hardly free from trouble. Most DB schemes are shut now, and DC schemes can be very volatile for the member. All "privatising" pensions will mean is that everyone is pushed into a DC scheme - the the individual punter takes all the risk (investment, longevity, annuity rates etc).