“Ministers have relied on the myth that public sector pensions need drastic change to make them affordable but major reforms made less than five years ago mean that the the cost of pensions as a proportion of GDP will fall”
Scorecard for the Government on public sector pensions – one out of 10. A late entry score of one is awarded for Danny Alexander’s recent statement in Parliament but the Government gets a poor score overall due to the lack of progress made in eight months of talks – which have so far produced no firm offer. The damaging tactic of negotiating via the media and peddling myths also earn Government ministers a zero score.
At points throughout the talks, public sector workers have woken up to the sound of Government ministers taking to the airwaves announcing their retirement plans were being ripped up. In June, as talks were continuing, Alexander made head-lines by announcing a hike in the retirement age to 68. Not only do these grand announcements shock public sector workers, they also threaten to undermine talks.
What is the point if, on major issues, the Government has already made up its mind? How can public sector workers feel confident that the Government is genuinely interested in negotiating if it breaks ranks and sets out red lines in the press?
The right wing myths peddled about public sector pensions are endless – but even Government ministers have waded in to fuel the debate. In early June, Communities and Local Government Secretary Eric Pickles wrongly claimed that the local government pension scheme cost every house-hold more than £300 each every year. In reality, it costs the average house-hold £67 a year, or 5p in every £1 paid in council tax.
After more than a year in office, you would have thought he would have grasped the basics of local government finances. His £300 a year claim wrongly assumed council tax was the only source of local government funding. Back in reality, 75 per cent comes from other sources, including business rates, fees, charges, and central government funding.
And as there are more than 7,000 employers in the LGPS – including private sector companies providing local public services, not all of the money in the employers’ ledger comes from councils.
Throughout the talks, Government ministers have relied on peddling the myth that that public sector pensions need drastic change to make them affordable and sustainable. But they already are – major reforms made less than five years ago mean that the cost of pensions as a proportion of GDP will fall.
These reforms have ensured that the schemes are in good shape – both the local government and health schemes have billions of pounds more coming in than is paid out in pensions every year.
These facts would get in the way of Government ministers’ plans to pay down the deficit through imposing a special tax on public sector workers – not a penny raised by the changes will go towards pensions.
No real progress in eight months of talks – but a late reprieve from a zero score due to Alexander’s statement in Parliament.
The score could have been higher if this statement had been made earlier, allowing time for negotiations to drill down a firm offer. As things stand, all we have is a statement in Parliament. That needs to be translated into offers in the scheme specific talks so that we have something firm to put to our members.
As always, the devil is in the detail and for our members, it is a case of once bitten twice shy. Public sector workers have already been stung by promises made in Parliament that were never delivered.
In his first Emergency Budget, George Osborne promised public sector workers earning less than £21,000 a £250 pay boost – exempting them from the pay freeze. But for low-paid local government workers, this money has never materialised.
They have been stuck on a pay freeze for two years, which could stretch to three at a time when inflation has just kept on rising.
Unison has said from the start that we want to reach a negotiated deal. The majority of our members are low- paid women working in the caring professions and they do not take action lightly.
But their strength of feeling over the detrimental changes to pensions was made obvious by the decisive yes vote for action. And as we still do not have any real offer we can put to our members, we have no choice but to carry on with preparations for November 30.
We are thoroughly committed to negotiating on this framework but the Government showing its hand so late means time to avoid action is running out.
“Pension provision in this country is going through a painful readjustment. Everyone has to get used to paying more, working longer and receiving less. This applies to both the public and the private sector”
Reform of public sector pensions is long overdue. Not only are public sector pensions unsustainable in their present form, they are also increasingly out of kilter with the pension provision enjoyed by the rest of the population and as such they are increasingly unfair.
The previous government failed to grasp the nettle, having stared the unions in eye over the changes and then blinked, with the result that many public sector employees today will still be able to draw their full pensions at age 60. In the context of a state pension age which is already heading rapidly up to 66 and will no doubt be pushed up to 68 by around 2030, this is grossly unfair.
Lord Hutton’s proposals were balanced and reasonable. He advocated preserving existing accrued benefits – an important issue not just in maintaining trust in the system but also to in persuading the scheme members that the Government was playing fair with them. His proposals on moving to career average make absolute sense in terms of spreading the state funded pension provision for the members more equitably across the membership. The linking of retirement age to the state pension age makes absolute sense for the majority of public sector workers, most of whom work in white-collar occupations, where it is not unreasonable to expect them to hang on until a higher retirement age. Again, to his credit, Hutton proposed less draconian changes for the uniformed services.
Just one-third of private sector workers enjoy any form of workplace pension provision and only 11 per cent are still building defined benefits. For them, a career average scheme payable at state pension age would look like a very attractive deal.
The change from RPI inflation proofing to CPI will result in a reduction in the value of the pensions and this has caused understandable dismay. It is instructive to look at the levels of inflation proofing in private sector pensions, where even CPI protection would be welcome. Eighty per cent of annuities are bought on a level basis. The PPF has no inflation proofing on pre-97 benefits, many occupational schemes only inflate benefits by the lower of CPI and 2.5 per cent.
The unions argue that pensions should not become a race to the bottom. Only a public sector worker could come up with such an argument. Employers in the private sector have a finite sum of money with which to reward employees. The same is ultimately true in the public sector too. The difference here is that the money has to be drawn from future taxpayers but it will still have to be found. Theoretically, just about any level of pension could be afforded although it might mean scrapping the odd hospital here and there. The question is what is sustainable in terms of the absolute share of GDP expended on public sector pensions, the level of pensions provided to public sector workers and how this compares with others in the wider workforce.
It has been suggested that more generous public sector pensions are compensation for lower wages. This may have been true once upon a time but now average earnings in the public sector are higher than the private sector, taking account of disparities in qualifications, age and so on. By this measure, public sector pensions should now be lower than their private sector equivalent.
I suspect that if it were not for the Government’s wider agenda of spending cuts and the demand that public sector employees pay more for their pensions, this deal would probably have gone through without too much shouting.
It has been suggested that these changes to the pensions constitute a breach of contract. All existing pension rights have been preserved. Salaries are renegotiated all the time, generally on a yearly basis and generally upwards, but this is not some immutable law. If employers need to renegotiate the terms of their workplace pension provision, then they have to be able to do that.
Pension provision in this country is going through a painful readjustment. Everyone has to get used to paying more, working longer and receiving less. This applies to all, both in the public sector and the private sector.
The Government has conceded important ground already. It has carved out a very generous exemption for those within 10 years of retirement. It has also improved the pension accrual rate, moving the career average schemes from 65ths to 60ths. To do more would be a betrayal of future generations. The Government should stick to its guns and make no further concessions.