Why is it that private companies feel they cannot afford defined benefit pension schemes for their employees but the Government has no trouble at all providing them for public servants?
Our Government is (directly or indirectly) the largest employer in the UK, with millions of public sector workers covered by generous DB pension promises. But such promises are largely unfunded.
Pensions are pay, and the money in pension schemes – funded or unfunded – is the deferred pay of the employees themselves, whether provided from employee or employer contributions. So I am horrified by the suggestion in the recent green paper on the future of DB pensions that the promises made by private companies could be watered down to make the schemes more affordable for employers if they hit hard times.
Taking away pension rights is akin to asking employees to pay back past salaries that are later judged to have been too high. Nobody would think that was sensible. Nor should anybody think it sensible to reduce the value of pension benefits earned in the past. Pensions are deferred pay. Deferred pay is pay.
The problem with our unfunded public sector pension liabilities in the UK is that, were they to be backed by a fund, it would be of the order of £1trn. That is a lot of money. Or at least I think it is. Those at the Government seem to lose no sleep over it. Indeed, it is something it rarely addresses when issuing its endless stream of green papers on private and state pension provision. I can only conclude that £1trn is a trivial amount in the overall scheme of things for the ship of state.
But if that is so, then I really cannot understand its reaction to the public fury raised by the Women Against State Pension Inequality campaign. This generation of women have been told it would cost £30bn to reinstate the pension rights they were denied by changes to the state pension age made in 1995 and 2011. The argument made by the Government is that £30bn is a lot of money.
But if that is such an unaffordable sum for it to magic up, then how on earth is it expecting to be able to come up with the £1trn required to pay out the promised pensions to public servants? Is this something we should all be terrified of?
Perhaps not. But it seems perverse that we are constantly bombarded with rules and regulations tying up our private pension system in ever more red tape and pushing our state pension age ever higher, yet trivial issues such as paying for advice directly from pension pots gets all the media coverage.
As we approach the third decade of the 21st century, the pension system in the UK is a mess. It is falling apart. How did we allow it to happen?
Steve Bee is director at Jargonfree Benefits