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.