The BIG QUESTION
THE QUESTION: Who has got most out of the public sector pensions deal?
The taxpayer. The government is not spending any more than it was planning to since it came out with its better offer on November 2. It is not spending any more money, it is just spending it in a different way. When Danny Alexander stood up and said this deal is not costing the taxpayer a penny more, he is absolutely right.
A Care scheme has three key factors - accrual, revaluation and retirement age. The retirement age is a done deal, pegged to state retirement age, so they have given up a bit of revaluation for accrual.
The taxpayer is the winner here because of the Robin Hood nature of the deal, which sees those who remain on relatively low earnings, and those with short service getting more at the expense of those with bigger pensions. This means in future they will be less likely to fall on Pension Credit in their retirement. From a pure socialist perspective this deal achieves a greater distribution of wealth. The other winners are those low-fliers with short service, who will build up better pensions as a result.
Graeme Muir, partner, Barnett Waddingham
There are winners and losers on both sides. And both sides have taken a short-termist approach at the expense of long-term factors.
The government has given a higher accrual rate than it had anticipated, although it has stuck to its cost ceilings. But it is not as good a deal as Hutton had wanted.
But the unions have given up accrual in return for lower contributions and re-evaluation for deferred members which will hurt them when they come to retire in 30 years’ time.
It transpired that public sector workers absolutely hated the idea of paying more, even though they were offered a higher accrual rate, they absolutely did not want to pay more in. So they have accepted a lower accrual rate.
The unions have felt pain and the government has felt pain. In that sense it is a classic case of getting to Yes. But the one positive is that it shows that pensions are actually more important than many people have thought they were, which is a good thing.
Zoe Lynch, partner, Sackers
The unions. If anyone has blinked on this deal it is Danny Alexander.
If you look at the accrual rates, they are quite generous. The civil service, for example, is a 44ths scheme, so you can get two thirds of salary after 30 years. Yes you only get career average and CPI indexation, but that is still a pretty good deal.
The unions have done a good job and I think they will be back this month working Alexander a little harder. The government is worried about cashflow, not about accrual. And it has got what it wanted, which is to secure the contributions today, albeit under a different formula, and it has got the shift from RPI to CPI, which will give it tangible returns in the near future.
The loser is the taxpayer, because this deal does not address the long-term cost of these pensions to the state. So to that extent the unions have done a pretty good job here.
Danny Alexander’s prediction that this is a settlement for the next 25 years looks like it could come back to haunt him.
Tom McPhail, head of pensions research, Hargreaves Lansdown