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No win situation

Gregor watt
Gregor Watt, Deputy editor, Money Marketing

The Government seems to have got itself into a bit of a mess with public sector pension reform. The mass strike action last November could be followed by further mass action this month, with teachers unions, local government workers potentially joined by firemen this time.

As well as being less than impressed with the details of the reform, the unions are upset with the way that the Government has handled the negotiations by repeatedly presenting reform as a fait accompli or announcing union agreement without, crucially, checking with the union negotiators to see if they agree with the terms of the reforms.

If the Government wants to pick a fight with the unions, that is entirely its business. It may even take comfort from the tacit support of the majority of the population who do not enjoy the benefit of a public sector final-salary pension and agree they are too expensive to maintain in their current form. However, it looks increasingly like the Government has got itself into the position where it has expended a large amount of effort and generated a large amount of ill feeling for absolutely no reason.

Back in January, independent pension consultant John Ralfe said, taken together, public pension sector pension reforms will not save any money over the long term and analysis by the Institute for Fiscal Studies endorses this view.

The IFS analysis says that despite the savings made by increasing the pension age of most public sector schemes and the big savings that will be made from moving the RPI to CPI for the indexation of pensions in payment, the details of the change from basing pensions on final-salary to career average will increase the accrual rates for many lower-paid public sector workers and so they will receive much more generous pensions. Although the Government is set to cut the future cost of pensions for the very highest-paid public sector workers, taken together, the savings made are offset by the increased liabilities for the majority of lower-paid workers.

IFS deputy director Carl Emmerson says: “The consequence of the long, drawn out negotiations over the latest pension reform appears to be little or no long-term saving to the taxpayer or reduction in generosity, on average, of pensions for public service workers.”

It seems the Government is expending time and energy on a situation where it simply cannot win. A defeat by the unions will be a severe political embarrassment but a victory, in what is turning into a bruising fight, looks to be effectively worthless. And, of course, it means that the Government will have to have the same fight again in a few years time to save some money.

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  1. Julian Stevens 6th March 2012 at 9:48 am

    Surely one of the biggest money-saving measures the government could and should enact is an outright ban on the all too common practice of granting public sector workers lavishly enhanced early retirement pensions in their early 50’s, with a generous “redundancy” payment added on top, and then re-employing them a couple of months later on a “consultancy” basis that costs the taxpayer even more. Why is nothing being done to address this?

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