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Categories:Other,Pensions

MM Leader: Govt must not falter on public sector pension reform

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As unions talk of further industrial action in the wake of last week’s national strike, the Government must not back down on the principle that public sector pensions have to be reformed.

The Government reforms follow the recommendations of Labour peer Lord Hutton, who proposed a set of welcome measures designed to make public sector pensions both fair and affor-dable while avoiding a “race to the bottom” and dispelling myths about so-called “gold-plated” benefits.

With the public sector suffering from swingeing cuts, including a two-year pay freeze, Hutton’s recommendations, particularly the increase in contribu-tions for many, come at a difficult time. But the “head in sand” attitude of the unions is not a defendable position.

Spin from the unions has focused on the fact that public sector pension provision is not currently unaffordable to the Government. But the reforms were not driven by the need to plug an immediate black hole in the public finances. Rather, they were designed to introduce a fair, long-term settlement that would be in the interests of both the taxpayer and public sector workers.

The move from final-salary to careeraverage pensions will mean that public sector pensions are still the envy of many in the private sector. Hutton has admitted his reforms would create a “gold standard” that would be hard to replicate in the private sector.

Consultants suggest career-average pensions will mean many lower-paid workers will get higher or equivalent pension payouts while the lowest paid will be shielded from a contributions rise.

Old, worn-out arguments about public sector workers sacrificing pay for a bet-ter pension no longer hold true. Over the longer term, it is clearly unsustain-able for the Government to continue to offer such generous benefits.

In campaigning for the retention of the status-quo, the unions are advo-cating the continuation of a glaring social inequality which is only going to get worse without substantial reform.

Auto-enrolling private sector workers into Nest or an equivalent scheme from next year is likely to prod-uce much lower pension benefits than public sector workers will receive after the proposed Hutton reforms begin. The message that individuals must take more responsibility to save for their own futures will be severely under-mined if the Government gives in to the unions over public sector pensions.

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Readers' comments (9)

  • There are many arguments in favor of reform BUT
    it has become quite fashionable in recent years to ignore contracts which are no longer beneficial to one party.

    Today we have a situation where a government or regulator feel able to tear up contracts and appeal to concepts such as TCF.

    Yes public sector pensions need reform but existing contracts need to be honored as well.

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  • You have to respect existing contracts , when you sign for a mortgage you dont expect to be told 22 years down the line that your going to have to pay for another 10 yrs .pay more and still not pay off your mortgage would you . what you do with new pensions is fair game ,then at least you can make a decision if its for you or not , people will just stop paying in if they kick to hard then there will be no revenue to pay existing pensions or future pensions , And as all private sector will do is pay the lot .

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  • Where has it been suggested that benefits acrrued to date are to be altered?

    As for future changes, the public sector needs to adapt to the world that the private sector has lived in for years. My understanding is that changing pension conditions for future service gives the employee the right to resign without notice. In the private sector people recognise that they are lucky to have a job. In the public sector they expect a job for life.

    We can only have the public sector the private sector can afford to pay for.

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  • It's odd to see the expression 'glaring social inequality' used when it's mainly those at the lower end of the earnings scale who stand to benefit from the supposed inequality.

    A strange take on the old 'politics of envy' Tory mantra.

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  • When I took out my personal pension contract many years ago I took it out in good faith based on the GOVERNMENT rules at the time e.g being allowed to take benefits at age 50.

    But the Government changed my "contract" and now I can't access it to 55.

    So why can't public sector "contracts" which said retirement at 60 now be altered to retirement at 65.

    Lots of retrospective contract changes take place.

    When Gordon Brown removed tax free dividend receipt from my personal pension fund he didn't say this would only apply to new contributions, my existing equity investments were not ring fenced. ALL of my equity investments were affected.

    I have paid NI all my life and was expecting my state pension at 65 BUT now have to wait to 66 and many will have to wait to 68. There is even talk of this moving to age 70

    Many private sector employees had contracts which originally included membership of Final Salary schemes BUT many of those contacts were amended and most are now only in DC schemes.

    Looks like retrospective amendments to pension contracts only happen to the private sector.

    ALL public sector schemes should be made paid up and everyone transferred into NEST.

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  • @ Anon 12:29 pm - Thanks for providing examples of the sort of unacceptable behavior which is now endemic in the UK.

    I don't mind it so much when others try a cheat me, to change the rules of the game (eg no grandfathering ) but I do object when those who are robbing me don't have the guts to say "we are taking advantage of you because we can" I object to being told that the changes that they want to bring about are for the good of the country or other such nonsense.

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  • In years to come, a forensic newspaper reporter will investigate pensions and find it is, next to the bank receiving taxpayer funds, one of the biggest scams of the century. Where have all the funds that have been paid in gone. To line the pockets of fund managers, consultants and politicians. The money given to the banks should have paid every mortgage in the UK, every student loan. The banks would have got the money, the people would be free of debt and the economy would be booming.

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  • To Anonymous | 8 Jul 2011 11:39 pm

    So your solution is to reward irresponsible borrowing and spending. What about those people who didn't wrack up huge debts living a lifestyle they couldn't afford?

    To John Blackmore | 8 Jul 2011 7:21 pm

    Its not a case of cheating anyone. When the public sector pension schemes were set up the life expectancy was considerably shorter so the cost was far less. Now that people are living longer those in such schemes are being asked to work slightly longer and to contribute more. Hardly been cheated when they are going to be getting far more out of the pension than was originally anticpated due to longevity.

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  • tony poole | 7 Jul 2011 4:36 pm

    You have to respect existing contracts , when you sign for a mortgage you dont expect to be told 22 years down the line that your going to have to pay for another 10 yrs .pay more and still not pay off your mortgage would you . what you do with new pensions is fair game ,then at least you can make a decision if its for you or not , people will just stop paying in if they kick to hard then there will be no revenue to pay existing pensions or future pensions , And as all private sector will do is pay the lot .

    -----------

    In the words of Kryten.....

    A good argument with one major flaw - there is no contract with public sector workers promising that a final salary scheme will always be availalbe for all future service.

    So I'm afriad that your mortgage analogy is not appropriate.

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