(Some of) the truth about public-sector pensions

Ms Flanders wrote:
'They can't retrospectively re-write the terms of people's employment contracts - even if the employees work for them'

They don't need to, I reckon they can cut already agreed pension entitlements using existing legislation if they absolutely needed to.

Isn't the truth about all pensions, public and private, that the current crisis is yet another example of the inter-generational wealth transfer (some might call theft) that has been going on in the past decade? The baby boomer generation awarded themselves generous pensions without wanting to pay the necessary money in. Because, as you note, past promises must be honoured, it is my generation that will have to see our own pensions cut in order to pay for the baby boomer's pensions.

Factor in the UK house price ripoff and the end of free education, and its safe to say that the baby boomers are the most selfish generation ever.

It is shameful that various Governments have not resolved this over the previous 40 years

It is to Cameron's credit that this Government will

It's a huge liability which will never be paid back whilst the current Scheme members, along with subsidies, continue to be paid in at one window, whilst it is paid out to the pensioners at the other window.

Due to the promised pension increasing inline with inflation (to a cap), civil servant pay must go up also inline with inflation to keep the liability in check, throught the contributions.

Will there be a point where more civil servants are retired, than there are employed and paying in? It doesn't bear thinking about.

It will probably be cheaper over the long run, to cut future promise's from a specific point, in exchange for a higher salary as compensation.

This is going to be yet another interesting issue for the government to deal with. Obviously the present scheme is unsustainable and really should have been amended to new employees some years ago.

But for those already working in the public sector, many chose to join taking account of the generous pension to compensate for lower wages than are payable in the private sector (not to mention development opportunities). This takes account of the high numbers of 'professional' workers in the public sector, where studies have shown that, like for like, wages remain lower in the public sector. They may appear higher when comparing mean salaries, but those figures do not take account of the higher percentage of professionals in the public sector.

Excellent analysis. I was a public sector worker (ex Headteacher) who took early retirement. Consequently I lost quite a lot of the potential value of my pension - at the gain of sanity and quality of life. If I had continued working (and survived) my pension - final salary related - would have been substantially higher than it is. One of the reasons for becoming a teacher (in 1972)was that although the salary was not great, the pension "rewards" were good. And thus it has turned out. I traded off salary prospects in the private sector against pension prospects in my later years. I am not "well-off" financially, but neither am I really struggling. I made informed choices- and believe now they were the right ones!

I went to work for the state straif=ght from school. We were paid far less than staff in the private sector and the "payback" was that we got a good pension and better holiday and sick arrangements. I dont work in the public sector anymore, but it seems to me very unfair to tell all those people who worked for low pay in the poublic sector on the basis that they would be rewarded when they retired that they are now not going to get their reward. The governamnet must pay public sector workers the same as private sector workers if they want to take away the perks or no-one will want to work for the government except for poor quality staff who cant get a job anywhere else at the going rate. You cant have cheap pay for the public sector and take away the perks that compensate for the low pay.

Thank you, Stephanie, for almost the first bit of well-informed analysis I've read on this subject.
But no thanks to that buffoon, Nick Clegg, for repeating the kind of populist drivel that got him where he is today.
I made the mistake of voting Lib Dem. Never have I felt so betrayed.

Yes, pensions are complex, but don't think that all public sector schemes are unfunded. Many local government schemes are run as funded schemes, and contribution rates alter to meet the demands put on the scheme.
But just think about the unfunded schemes for a minute. Yes, it may well be true that NOW the contributions being paid in are not enough to meet pensions being paid out, but when these schemes were set up the converse applied. Did governments complain about that? No, they just spent the money.

At last someone in the media getting past the hype about Public Sector Pensions. The garbage that has been spouted by the likes of the otrygraph and various right wing think tanks have been grossly unfair to those working in the public sector as well as to the public who do not udnerstand how the various schemes work.

I think the problem us quite simple. A large element of public sector pensions is paid for by taxpayers. While this includes public sector employees, the majority of taxpayers will be for example private sector employees, self-employed people, those on benefits, etc.

Apart from trade union opposition, the rules could quite easily be changed for new employees. Since there are always people joining public sector pension schemes within a few years of retirement, a reduction in those pension entitlements would soon take effect (if slowly).

The big problem is to put public sector employees generally on the same terms as the rest of the population.

I would suggest that a high proportion of savings from cutbacks in public sector pensions should be reallocated to the state pension, from which everyone benefits. This would be fair!

Once again the public sector gets tarred with the same brush - sometimes I wish the learned economists and commentators would spend a little time looking at depth into the question of public sector pensions - in particular the nature of the funded and unfunded schemes - the Local Government is a funded scheme and has recently been reviewed.

One can hardly blame our civil servants for taking past governments up on their astronomically generous offer

Much of the damage is done now but if the government is brave enough to stop new benefits accruing, at least we as a nation might develop a more sensible attitude to retirement saving - and taxation.

I wonder if the series of pensions raids and other 'imaginative' changes to the tax system seen over the last 15 years would have taken place if our senior public servants had been familiar with the reality that what you retire on is equal to what you save + how wisely you invest it - whatever the government pinches in tax

I would feel slightly more comfortable about my retirement prospects if they were in the same boat instead of the Fairyland Special they're currently rideing.

Could someone please clarify whether the "Public Sector" figures quoted in this blog include the Local Government Pension Scheme?

I only ask, as I was under the impression that the Local Authority schemes funded themselves via employers and employees contributions, plus investments. Whilst the "Civil Service" pension scheme is financed out of tax revenues every year.

I do not feel at all guilty at receiving a good NHS pension. During the vast majority of my working life the government of the day cut doctors' pay that had been decided by an "independent" review body after considering evidence submitted by the BMA and the government. We were supposed to be compared with similar professionals in the private sector, such as solicitors and architects, but fell further behind year after year.

One does not need this detailed analysis to argue that pensions in the public sector are totally unreasonable.

Firstly they are not properly funded and the government, as so often is the case, relies on taxing the currently tax payer to foot the payout of those drawing those pensions. Secondly many of the public jobs are unnecessary anyway and just a way to keep the number out of jobs artificially low, just because it looks better.

The fact is that pensions should be on a par with the private sector, paid for and funded in exactly the same way. Then we would have no more of this nonsense.

It is a problem what to do about the bloated numbers of those in surplus public sector jobs but the answer is not to employ and pay people beyond the means of the public purse. With a huge deficit there is no easy was to deal with this though it might make sense for everyone to receive less pay as in Greece and now Spain even before we get into quite they same difficulties they are.

Be carefull what you wish for we may end up with the public sector full of people who do not see it as a long term career and have a less skilled or committed public servant. As someone who worked in two parts of that system ,The Army as a bomb disposal enginneer and the the Police > I know that some people will say I am lucky as I know get a good pension . However I say yes I am lucky because of the choices I made where the the idea of a good pension at the end made up for some of the negative things I had to face during my two careers.

Most private-sector employees have to buy an annuity with their 'pension pot'. Many paid into final-salary schemes for years, and were powerless when those schemes were converted overnight into money-purchase schemes.

Why can't the same be done for public-sector employees? It is easy to establish the value of each employee's 'pension pot'.

And no, it's not very fair - but it even less fair if the public sector get their guaranteed pensions at the expense of the private sector.

This blog has traditionally attracted a lot of pessimists who seemed to have almost a deathwish about the UK economy and have spent the last 9 months flatly denying that any signs of recovery were real. The sort of people who credited the 0.3% economic growth in Q4 2009 to 'christmas shopping'. Now that the latest figures show government revenues sharply up (reflecting recovery) and borrowing in May under-shooting expectations (likewise), and with a host of other indicators showing the UK is well on the way out of recession, maybe some of these people will have the courage to admit they were wrong.

All very interesting but how about some further research about the fairness of:
early voluntary retirement - a substantial proportion of public sector employees enjoy EVR, some at ages as early as 50, with full or near to full pension benefits; surely adding very significantly to the cost of public sector pensions
systematic manipulation of the system - I know a number of public sector employees who have been promoted after they have been granted EVR (boosting their pension rights, since these are final salary schemes) and who have then been re-employed after "retirement" as consultants by their same department {let's be clear, I don't blame the individuals but the rules should not allow such things to happen]

1 Dempster

"They don't need to, I reckon they can cut already agreed pension entitlements using existing legislation if they absolutely needed to."

How exactly are they going to do this? A key point is that they can't do this. Ethically, it would also be the wrong thing to do.

This is one of the better explanations on the real issues with public sector pension and how there are two sides to the story. The major difference with public sector pensions is that the personal contributions bear no resemblance to the actual money eventually paid out eg An employee earning on retirement £30k a year would have to accumulated a pension pot of at least £300k to payout the 50% final salary guarantee

You are joking aren't you! Public sector workers are all too aware of the value of their pension schemes, why else would they work for the public sector? All that paper shuffling is stultifyingly boring, but the impossibility of being sacked together with the gold-plated pension, early retirement, the long holidays, the unofficial holiday ala sick pay entitlement and the unaccountability regarding diminishing productivity make it all so worthwhile. The only requirement is that you vote Labour at each election as part of your responsibility as a member of the client state.

'They can't retrospectively re-write the terms of people's employment contracts - even if the employees work for them'

True but they can tax them.

They could start by taking a similar slug of value out of them as GB did to the rest of us when he quietly abolished ACT relief.

You're right to say that existing pension entitlements can't be removed. This is why public pension liability has always been "the elephant in the room" - it's a UK govt debt that is more enforceable than our foreign debt - it's absolutely enforceable in a UK court. So you could reasonably say it's a bigger problem than the national debt.

But there's a simple answer: tax. The windfall tax on the privatised utilities - and forthcoming bank taxes - show that you can take what you want, from whoever you want, when you want. A nice workaround for contractual issues. And you can even take it at source to stop anyone trying to move abroad to avoid it.

So how about tax at source on all pension benefits paid out from an unfunded scheme. Or an under-funded scheme if there's any kind of state guarantee protecting it. Public or private, no discrimination. Set the bands and rates progressively - nothing or very little for bin men and junior nurses to pay, lots for senior civil servants, police, military officers. Voila.

Pension credit : last year 2009-2010 we got an extra £5 a week ; this year the government could only scrape up an extra £2.60 a week : due to mismanagement and MP`s expenses .

It may be true that Treasury-funded schemes are pay-as-you-go but this is not true of the local government pension scheme. My local authority's pension fund stands at £2.7bn, paid in by employees and employer over the years. Multiply this by the number of local authorities in the UK and a fair chunk of the £770bn NPV of future public-sector pension benefits is provided for.

Trouble is a lot of public sector employees accept lower wages because of the benefit of the pension. Do away with the pension and the unions will want more pay so that their workers can afford to pay for their own pension.

I am one of those state sector pensioners who are being accused of being greedy and to blame for the huge public debt. Forty five years ago I began working in the public sector at a salary which was 2/3rd average pay. I took the job partly owing to a retirement pension - something for later rather than 'all now' and was happy to receive less pay for the privilege. In later years,successive governments then increased salary levels to private sector levels to boost recruitment.
Yes, in retirement I am now relatively comfortable, but for many years I earned less than private sector average.
Hope this helps to balance the current debate.

Stephanie

An excellent, clear and correct account of public pensions.

Doing exactly what the BBC should be doing.

Please tell your bosses - and Nick Clegg.

As an ex civil servant. The rules for determining civil servants pay determined by Mrs Thatcher in the 1980's were:

Calculate a representadive annual salary from a survey of private sector employers for similar jobs i.e. PA, clerical assistan etc. From this salary deduct a sum to take account of the relatively high quality pension given to civil servants and the greater job security in the civil service at that time.

This means that for large parts of their working life civil servants were being paid less than equivalent private sector employees on the basis that they would recieve a better pension. To try and renege on this now would be totally unfair.

4 wrote

Will there be a point where more civil servants are retired, than there are employed and paying in? It doesn't bear thinking about.

This is ENTIRELY the point

Yes, it is here now, almost, and this is why we need change

Most public sector workers are on low wages and their pensions, at least most of them, are calculated on 1/80 of final salary per year worked. Even with forty years service all that can be accured is half salary.
So it always seems a little rich to me when politicians get on about public sector pensions when several years ago they voted to reduce their own requirements from 1/60 to 1/40 per year. And these are also the same people who quietly wound up their Equitable Life additional voluntary contributions scheme just before the society collapsed leaving other members to flounder.

In my opinion, civil service gets struggled to contract people in many areas. For an average civil servant, salaries are much lower than in the private sector. The government needs to give a good pension to attract good professionals to work for them.

Obviously, the conservative government will reduce those benefits, making people move to the private sector. The public services will be really bad, what is a good excuse to privatise things. Then we will not pay civil servants pension, we will pay overinflated consultancy services. We just need to look at the silly train prices that we pay these days. Everything will move to privatise and give the money to the same people.

Civil service needs more efficiency and less top people getting big amount of money. Salaries in boroughs need to be regulated. They also need to change those policies of spending all spare money at the end of the year because if not they will get less money next year. A very common practise everywhere.

(A bit more of) the truth about public sector pensions..

Don't forget that not all public sector pensions are the same. Some, like the local authority schemes, are funded in a similar way to company final salary schemes. Whilst the "employer" making up any deficit in the scheme is effectively the council tax payer (or the tax payer via central government as it provides the biggest chunk of local authority finance) there is little difference between these schemes and final salary company schemes. Most of both are underfunded and the issue is whether we can afford such schemes in the future at all.
The schemes for the likes of teachers and the civil service never have been funded (i.e. have not been invested for future returns). Instead, successive governments have collected contributions from these people and added them to the revenue kitty over the years just as if they were tax, national insurance or VAT (or any other money government gets in and then spends on something else). So why don't we stop the "let's knock the gold plated pensioners" arguments - its not their fault that past governments have adopted a crazy approach to funding their pensions - and create a debate on how we can move forwards in the future to a more sustainable pension system.
And just in case anyone thinks I've a vested interest, no, I do not.

When a private pension scheme has an actuarial valuation, there a simple question to answer:

If the scheme was wound up now, and the funds were used to pay for the acrued benefits (the exsting promises), would there be enough money, and if not what proportion of the promises could be paid by the fund. The answer for Local Government might well be, say 80% - but for other areas the answer is simply 0% (there is no fund).


This is the problem.

Home Truth No 3

That unlike any private sector employer, successive governments have scammed millions of people's pension contributions for fifty years without investing a penny of it using it to pay outgoing retirees.
If any other organisation did that they would be prosecuted.
If those same public servant's pension contributions had been wisely invested they would have accrued a huge pot of money like BP and Shell did for their employees.
And now this government wants to renege on the promises every other government before has kept,the public pensions scheme is rather like a massive Ponzi scheme, except that the perpetrator of the scam, the government, is bad-mouthing the victims ,the poor old employees, rather than being prosecuted for the theft that would make Maxwell look like a saint.
Stephanie, your calculations also allow nothing for the compound interest growth effect those contributions would have had ......imagine an NHS pension fund manager being allowed to invest in Google or Apple or Microsoft .......
A onehundredfold growth in the share price could have been obtained.
Or a FTSE or Property prices equivalent increase.
The opportunity cost needs to be factored in too.
As well as a comparison with private sector shares incentive scheme costs.

There is a lot of focus once again on the Public sector yet what is happening to the Bankers that put us all in this situation?

The Public sector is a smoke-screen that is used to deflect attention away from the Bankers and to create public concern and outrage yet the politicians still after all this time have not put in placeways and means of compensating the rest of us.

Also, pensions are agreed at the time of signing your contract and the very people who are resonsible for deciding the pension package within an organisation are clearly not getting the maths and forecasts correct.

Worst still are the politicians who then come along who tax all of our pensions and then find ways around reducing the pension benefits that were agreed at time of signing your contract, yet with their lifestyles, any attempt to reduce their pensions will ALWAYS be compensated for in other ways - they effectively have their own licences to print their own money for their own old age.

Is this article written by someone who has a state funded pension? It seems like it!
I find it extraordinary that the article seeks to defend state pensions on the basis of whether there are more public sector employees paying into them than those taking money out! What does it matter if a public pension is employer funded or Treasury funded?
Final salary pensions are a thing of the past. They were designed for days when people died at 75 and annuity rates were much much higher.
Why should I pay my hard earnt salary effectively into a public sector pension. Unfair doesn't even come close to how reflecting many people feel about this. This just breeds resentment and shows what an unfair society we have.
As regards retrospectively changing the rules does this help explain why we so easily transferred our powers to Europe and the ECHR. It was accepted by civil servants who knew it would safeguard their pensions.
Surely the only solution to this is the state pensions become money purchase and the govt just pays into an external fund like the private sector.
Sorry Stephanie but you got this one wrong. I think you need to explain yourself so we can give you another chance.

Article is a helpful contribution to a much needed and long overdue debate.
Strikes to preserve future and ongoing commitment to (unaffordable) benefits meets tax payer revolt at lack of equity. Politically sustainable - no chance. A few observations:

Existing contracted benefits shouldn't be grabbed back. A horrible precedent, an assault on general contract law and other liberties. Just wrong.
Should the future cost of these benefits be pruned by inflation and devaluation of the pound - ideally not so much - but this will likely happen to some extent and should to all vs protecting this group and raising taxes further on everyone to pay for it).
Should similar unfunded benefits be accrued in the future ?
Again absolutely not. Time to stop making unsustainable and inequitable promises with other (future) people's money.
1 Get the true value more visible for the political battles to come on this.
2 Start cutting with Ministers, MP's, Senior Civil Servants, Back Office and work down the organisational pay grades towards the front line. This is essential for any credibility from the state as employer on this issue.
Aim to move to invest as you go defined contribution schemes for all from this point on. All DB schemes progressively closed to new accruals over the next few years. DB scheme parameters frozen or adjusted based on benchmarking where contracts permit this (a quid pro quo of honouring contract law is it works both ways).
But how quickly can such a transition be done (short term debt/cash flow cost impacts are very significant with moving to accrual as you go DC - it clearly can't be instant and circa ten years is probably the longest that makes political sense. But this is a "how to get there" question vs one about the destination of choice ....
I have a lot more sympathy with the police, fire, nurse and social workers at the low paid sharp end of the public sector given how hard it is for anyone to save a decent pension pot from a low salary in a DC scheme (but no more sympathy than for anyone else in industry on the same terms).
We do need to get to a future model where the fact the government is the employer is irrelevant to the class of benefits received and we all have the same long term challenges on saving for our families out of taxed income.

21. At 4:02pm on 18 Jun 2010, Dr_Doom wrote:
1 Dempster

"They don't need to, I reckon they can cut already agreed pension entitlements using existing legislation if they absolutely needed to."

How exactly are they going to do this? A key point is that they can't do this. Ethically, it would also be the wrong thing to do.

Actually they can under current Employment Legislation, although it would be better to negotiate an agreement

Firstly, the scheme needs to be closed to new entrants, and future benefits from day x will be accrued on a money purchase basis

It is the only way financially for it to work

Part of the pensions debate is the result of the falls in annuity rates and investment returns purchasable by private sector pensioners. If these had not fallen so much in recent years the public sector provision would not seem so overly generous.

Annuity rates depend to a largish extent on the investment returns from high quality bonds and govenrment bonds and these depend on interest rates. So the consequence of overly cheap money caused by near zero interest rates is the low pensions available to private sector pensioners. So interest rates need to rise by a factor of ten times present levels (to at least 5%) to redress the pensions imbalance. Thus the public sector pension problem is the direct consequence of the incompetence of the Bank of England in its devastating and totally unprecedented attack on saving rates!

I would have considerably more patience with public sector pay if they did not strike for pay increases - it seems to me that the difference in the public/private sector pay is not so very different, but the pensions that come out of it are hugely different. I do not want to "do anyone out of" a pension they have earned, but as has been commented before, particularly the "boomer" generation, they are expecting a lot - and leaving rather less for the rest of us - if I have to work until I am 67 (currently that is the case) so should they -raise the age now, with perhaps two years' warning - sorry if they feel hard done by, but with another 27 working years, knowing I have to work until I am 67, and I will be paying their pension for decades; I feel pretty hard done by too.

16. At 3:50pm on 18 Jun 2010, NowHearThis wrote:
One does not need this detailed analysis to argue that pensions in the public sector are totally unreasonable.

Firstly they are not properly funded and the government, as so often is the case, relies on taxing the currently tax payer to foot the payout of those drawing those pensions. Secondly many of the public jobs are unnecessary anyway and just a way to keep the number out of jobs artificially low, just because it looks better.

....You speak as though the Government are a separate entity to the Public sector - The Government are the Bosses of the public sector and someone in Government decides the pension policies for the Public sector. Therefore ask why, in the year 2010, has the Government, both labour and Tory before it, not sorted it out after all these years?

Also, we in the public sector do not and cannot earn bonuses that many (not all) companies pay their employees.

The public sector is a political football with current and previous Governments keeping it at 'arms length' yet they have all treated it like it is nothing to do with them. Ask how does the public sector get itself in the mess it is in? The answer lays with Government for repeating, ongoing failures to Manage it properly and get it under real control.

As a recepient of a government pension, 22 years plus in the forces, I can tell you all it is no bed of roses!
It has always been drummed into you that the service is well worth it as the pension is excellent!
The last statement I received after the start of the tax year, was primarily what I will be paying back in tax, and a small footnote saying my pension wasn't going to increase this year, as they have calculated that the cost of living has not risen enough to increase my relatively small pension!
I wonder if any of these politicians could live on what I receive!

It seems to me that many of those in the private sector were very happy to earn higher wages than those in the public sector when things were good with the economy and businesses were doing well. Most employees in the public sector settled for a lower wage knowing that they had a reasonably secure job and at least they got a pension at the end. Now even the security is doubtful!
It looks like a bad case of jealousy , as the private sector has shrinks and things get harder they are all looking for reasons to justify their case, that the public sector shouldn't get a decent pension. It is a 'you have something I haven't and thats not fair' attitude .
The other problem is that many people just don't make the effort to subscribe to a pension scheme or if they do they put a ridiculously small percentage of their wages towards it . If you want a decent pension it will cost you.
I was public sector employee for 30 yrs and no one complained when we had to pay a 12% contribution towards our pension. They were all earning too well in the private sector and thought we were mugs for accepting the wages we got.
Now that the economy has shrunk so much everybody wants to work in the public sector as it is reasonably secure and you get a pension.
I can understand that in the future things may have to change, but let it be a considered and sensible approach to a long term problem and lets stop these knee jerk populist attacks.

Here is another home truth:

I could have earned three times my salary by working in the private sector, so a 21% annual employers' contribution is not that wonderful!

'They can't retrospectively re-write the terms of people's employment contracts - even if the employees work for them'

Stephanie, you are assuming that the pension and it's benefits are fully defined as part of the contract of employment. In the private sector final salary schemes are closing exactly because they aren't explicitly defined in the contract. They may state "contributory pension" or some such but they don't define the benefits. If public sector contracts are worded the same we are free to change the benefits as we see fit, as long as they keep some sort of pension, still honouring the contract.

It's more a question of inequality and unfairness rather than affordability. That shortfall has to be made up by taxing those who have little or no pension provision themselves. The average public sector will probably recieve more in their first year of drawing pension than they paid into the scheme in their whole working life. Contrast that with a DC scheme where a lifetime of contributions building up a 100K pot might produce 7K pension each year.

Where is the fairness. It's all very well public sector employees saying they are entitled to it, but if the only way of paying for it is to further disadvantage the private sector workers by taxing them it's just wrong. It's true that public sector workers will be taxed also but they will get that tax back in their pension, the private sector worker won't.

37

You miss the point, it isn't a scam, it is what has happened from day one

Whilst there were more members than retirees, and higher inflation, it works

When you have more retirees and lower inflation, it doesn't work, especially with much higher life expectancy

Everyone with any pensions knowledge has known this was coming

For the last 40 years or so all governments have dodged the issue

It doesn't matter what anyone does, current contributions cannot keep funding current benefits

Money purchase is the way it will be for earnings from some future date

Just do the numbers

If the public sector pay and conditions are so bad then why is it the grave yard of ambition, why do "hard-done-by" public sector employees stay there and put up with it?Go join the private sector? Why does the private sector(especially so in Wales where it is virtually non existent)struggle to attract current public sector employees?Why are there no defined benefit final salary pensions in the private sector? The answer is very simple ; State employees know they are on a very, very cushy pay and pensions deal and know they will never expect to be remunerated so generously as they are in their public sector jobs, most of which get pay rises year on year,job security for life,median salaries that are HIGHER(according to ONS)than equivalent private sector roles, and of course their inflation proof gold plated pensions that pay out far more than they have ever paid in (and alot more than they would ever accrue paying into a private pension).THAT IS WHY.THAT IS FACT. In other words, the public sector is the economic utopia we all want to live in, but sadly most of us can't,where in the real world us wealth generating private workers will experience relatively poor salaries(save for the tiny %'age at the top),worthless "money purchase" pensions NOT backed by the Govt when the stock market falls, pay freezes and so on. That is why there is so much resentment toward the public sector,it is a grossly unfair system that thankfully the tories will change, and yes governments CAN change existing terms and conditions and reduce future benefits accruing, this is what Greece has done, Spain is in the process of doing it, notwithstanding EU law ; all EU law can do is protect benefits accrued to date in respect of PAST service, NOT future service.That can be altered and must or the UK will be the next Greece.

Whilst this may not be a complete analysis of public sector pensions it is a lot more balanced than most - keep up the good work Stephanie

There are two issues that need to be considered: affordability and fairness.

Dealing with the fairness issue. It is certainly the case that a final salary scheme is much safer for an employee than a defined contribution or money purchase scheme. Even more so when the employer is the public sector because there is no risk that the employer will defraud the scheme and go bust. However, the govt (and I include the last Tory govt in this) has spent a considerable amount of time legislating final salary schemes out of existence in the private sector. It is very likely that within the next decade all but a handful of final salary schemes in the private sector will have closed, certainly to new entrants and possibly also just closed to existing members as well.

Private sector workers will rightly conclude that it is totally unfair that the public sector should be entitled to something that is denied to the private sector. You cannot have "one rule for them and one rule for us" mentality. I am sure a lot of public sector workers will object but on the basis of fairness I have no sympathy.

The second issue is affordability. I am sure there will be some public sector schemes which are funded and in surplus, but like the private sector these will be a minority. I am also sure that the total number of public sector employee needs to reduce (100-150 MPs would be a good start). We have long known in the private sector that a declining workforce and longer life expectancy busts any final salary scheme very quickly. Of course for the public sector this is not an issue because the taxpayer picks up the tab. Unless something is done that tab will within 10-20 years spiral out of control. So the question is what should be done:

One solution is to increase significantly employee contributions but there are two problems with that. Firstly it will probably delay the inevitable unaffordable point not make the pensions affordable unless contributions were increased to a point which made them unaffordable to current employees, secondly public sector employees are often poorly paid and it does not seem particularly fair to load up their contributions now to pay for pensions for people now retired.

A second solution is too change the terms of the pension - not in relation to rights accrued but for future rights. Average salary rather than final salary being one such change. Problem with that is another solution which delays the inevitable rather than solving.

The third solution is expensive in the short term (which for pensions is circa 10-15 years) but very cheap long term. Scrap final salary schemes and put in its place defined contribution schemes but with a decent employer contribution

42

Nonsense

The issue is entirely unconnected, as there is no relationship with public sector pensions and annuity rates

The issue is coming to the fore due to life expectancy rising, and the number of retirees now starting to exceed the members, and the ratios by which this is happening

Of course if they had no pensions they would have to claim from the State so that amount needs to be offset from the £770Bn. The amount of tax relief that Gordon took from Final Salary pensions has simply been accumulated into future debt because this will also result in massive additional claims on the taxpayers so he actually managed to tax the future of our children and of course the same applies to PFI and PPI projects which are effectively 30 year mortgages. The problem with all this public debt is that the contributions have been treated as revenue and spent and no Govt. has actually reserved or invested them in a fund to pay out in the future.
When you look at the National Debt (about £800 Billion)it looks as if every penny that was paid out in benefits and projects for the last ten years was borrowed. We need to keep a much closer eye on Govt.s of every colour and we need a massive enhancement of the Freedom of Information Act so that our democracy regains credibility.

Nearly every family in the country has someone who works in the public sector in one form or another; so let's once and for all stop pretending that we are merely talking about faceless and highly paid bureaucrats in Whitehall.

As a former public sector employee I can only reiterate earlier comments; that the financial rewards are extremely low (compared to the private sector) and the only true benefit is the pension. To have that sole benefit retrospectively withdrawn would be a grossly unfair (not to say, illegal) outcome.

Even where the pension is supposedly 'non-contributory', annual pay rises are always adjusted to take account of its supposed value i.e. staff do 'pay' for their pensions whilst they are working (even if that is an uncomfortable truth to the likes of Nick Clegg).

It is also fair to say that no current Civil or Public Servant devised the current 'pay as you go' pension funding process, and cannot surely be asked to bear the brunt, largely because the current government seeks to cut staff numbers.

You have forgotton an important factor when calculating the cost of Public Sector wages and pensions. Most Public Servants are poorly paid and 30% of what they do earn, paid for by the tax payer, goes straight back to the exchequer. Civil Servants pay taxes too.

These low paid workers on retirement will probably be eligible for Pension Credit and their work pension will be deducted from this. I retired after working for the DWP for 10 years and receive Pension Credit minus my work pension which is deducted pound for pound. If I received no work pension at all, my income would be unchanged and the cost to the taxpayer would be exactly the same. In fact, my income and the cost of it to the taxpayer would be exactly the same if I had never worked a day in my life.

If you want to work out the true cost of Public Sector pensions, first deduct Pension Credit from the amount.

Public Sector workers, who accept a wage considerably lower that the commercial rate in exchange for an earnings related pension, are still cheated in the end.

Here is an idea - why not simply quote all salaries in terms of the total value of the pay plus benefits (including pensions) elements. Then public sector employees could see whether they really felt underpaid compared to the private sector and private sector employees might see just how much value there would be in applying for any public sector jobs that were advertised.

41 Kevinb

"They don't need to, I reckon they can cut already agreed pension entitlements using existing legislation if they absolutely needed to."

"Actually they can under current Employment Legislation, although it would be better to negotiate an agreement"

I was taking already agreed pension entitlements to mean benefits accrued to date. The only way to renege on these benefits is for the company to go bust and for there to be insufficient assets on wind up.

I agree that we all get tarred with the same brush as 'Public Sector Employees'. I am a non GP partner within a large medical centre. I like the vast majority of GP's in this country are self employed, why? because its been that since 1948. As a self emplyed worker within the NHS this means that I get to pay 6.5% 'employee' superannuation contributions AND 14% 'employer' contributions. A total of 20.5% of which the state contributes nothing.

42 JFH

"Annuity rates depend to a largish extent on the investment returns from high quality bonds and govenrment bonds and these depend on interest rates."

This is correct. Annuity rates depend on the yield on medium to long term government bonds.

"So the consequence of overly cheap money caused by near zero interest rates is the low pensions available to private sector pensioners."

Low short term interest rates generally lead to higher yields on medium to long term bonds. This is due to the inflationary effects of short term interest rates and the consequent need to offer higher yields to investors as compensation for the extra risk.


"So interest rates need to rise by a factor of ten times present levels (to at least 5%) to redress the pensions imbalance. Thus the public sector pension problem is the direct consequence of the incompetence of the Bank of England in its devastating and totally unprecedented attack on saving rates!"

Given the comments above, doing this could actually make the pension deficits worse as long term bond yields decrease further.

50. At 5:15pm on 18 Jun 2010, James wrote:

"If the public sector pay and conditions are so bad then why is it the grave yard of ambition, why do "hard-done-by" public sector employees stay there and put up with it? Go join the private sector?"

To turn this argument on its head, if private sector pay, pensions and conditions are so much worse than in the public sector, why do private sector workers, if they are qualified to do so, not join the public sector?

The truth is that in a free society we all make choices and then have to live with them.

Personally, as someone who knew what happened to many private sector workers in the 1930s, because it happened to members of my own family, I chose a public sector job at a lower salary, rather than a private sector job that was on offer when I started work.

As with so much in recent years the status-quo was and is unsustainable.
If in the future there is not enough money to pay the pensions it does not matter what any legal agreement says.
The UK has pension problems but I was informed that they were far less of a problem than the rest of the EU. Before the latest financial melt-down it was the EU's pension liability that risked bringing down the Euro.
I believe the book makers may have stopped taking money on the collapse of the Euro. Bookies are pretty good with figures.

19 chrisbastille

As the person who alleged that the much vaunted and highly marginal return to growth in the last quarter of 2009 was due to Christmas shopping, I see no reason to change that view.

In a later post I went on to remark that there would be some sort of recovery in the spring of 2010 and you then go onto prove that very point.

However, the devil as always is in the detail and the use of the word `recovery' remains arguable. There is a lot of speculation about the prospect of a double-dip recession. I expect there to be a lot of trouble ahead which will include periods of recession, periods of slow growth but nothing which could be called a recovery. I have been through recessions before so I know what recovery feels like and this does not feel like a recovery.

The debt problem is too big for there to be recovery in the short term. What we are experiencing are the consequences of GBP 200 billion quantative easing and some GBP 150 billion of fiscal debt from 2009. There is inflation in the system due to a devaluation of sterling - I was looking at spot-rates today of US$ 1.41 to the pound - at the peak of the boom I was looking at close to US$2.00 to the pound, and unemployment is still growing before the public sector lay-offs start.

Am I talking down the economy? No, I am telling you what I see in my daily life at the economic coal-face. We are in trouble but I am confident that we can work our way out of it given time and energy.

47 Civil Pensioner

"Here is another home truth:

I could have earned three times my salary by working in the private sector, so a 21% annual employers' contribution is not that wonderful!"

REALLY!!! Doing exactly the same job? That sounds like a bit of a stretch. If true, more fool you though.

When I joined the civil service from the private sector the civil sevice salary offered was about 6% less than the salary I earned in the private sector; to take account of the non-contributory pension scheme.
So I notionally paid into a pension via my reduced salary. The disadvantage was that the pension would be calculated with respect to a salary that would be at least 6% lower than that I would have earned in the private sector as a professional civil engineer.
Can someone explain to me why I am, and other public sector workers are, being demonised?

Probably the most informative piece I have read on public sector pensions. There are one or two areas you have not mentioned, firstly you fail to mention there are many pension schemes in operation, some are more economical than others, for example some have employee contributions of one percent through to eleven percent contributions. Many of the pay as you go schemes were quite profitable for the employers in the past, not just 2008/9, some were profitable right throught the eighties, no politician complained about that, nor any in the private sector! Some unions did flag this up suggesting that the schemes should have an investment element.

Secondly, you fail to mention many of the schemes have been closed to new members and new pension schemes with much lower benefits and longer service required, some in place for two or three years that I know of, this in the short to medium term must make the older schemes much more expensive to employers, however in the longer term the cost to employers will decline.

Thirdly you could point out that in many schemes those who progress in management will proportionately pay less than those at the base pay level for their pension, for example, a person start on the bottom rung for a few years, paying say the eleven percent contribution, then promotion comes along to the second rung still paying the eleven percent, then again promotion come along and so on til the person eventually reaches the top post paying their eleven percent contribution for one or two years at this level, but earning a final salary pension on only one or two years contributions at this level. This is one of the reasons that these pension schemes are so expensive as there has been a massive rise in middle and senior management in the public sector over the last twenty years or so.

This comment was removed because the moderators found it broke the house rules. Explain.

As a middle ranking 'public sector worker' (sort of, but not quite in the main civil service - yes that means a 'quango' (of sorts)) there are a number of aspects of this debate that intrigue me / points I'd like to make.

a) I think that public sector workers, generally, don't know the true value of their pensions and/or its not factored in when people apply for jobs (I certainly didn't). This, to my mind, has lead to the push for wages in the public sector to rise towards those in the private sector - especially where comparisons can be made. Has this pushed the overall remunerations package of public sector above private - I don't know if anybody knows, but it would be interesting to find out.

b) The value of public sector pensions can be worked out - it happens when somebody moved from an organization in one public sector scheme (e.g local gov scheme) to another (e.g. central civil service scheme). I've done this twice and each time I took 'entitlement' with me, but as a pot that gained an equivalent amount (not the same as they work on different ways of paying out (lump sum v annual etc). That ability to move between different parts of the public sector and still retain pensions rights is a good thing - it encourages flexibility in working.

c) Why is the debate about dumbing down to the lowest common demominator? Surely the scandal is that private sector pensions have been trashed (both by the employers and by the government) and that nobody stood up then? Whilst I buy some of the argument that we can’t make our good and services more expensive than those produced overseas – there must surely also be a case that we should be providing people with both a living wage and a pensions that enables them to retire with dignity? Just because the latter part of this has been destroyed in the private sector, doesn’t make it right to do so in the public sector. Yes there are going to be some hard years to pay down the debt the country has run up – but that must be done in a fair way.

d) Allied to (c) above public sector pensions are a block on the free movement of labor between public/private sectors. I've got a decades worth of final salary built up - worth about £8k pa when I retire (on my current salary. It would take a fair payrise on moving to the private sector and/or an expectation of a rise to a high level to make it economically worth my while. As I think I've got a chance at one or both of these, and I regard myself as having talent people will pay for - I may make that jump (or be forced to). BUT the value of my pension may well act as a brake on that. If you accept the argument that I could do a good job in the private sector- and factor this across many other people like me, this 'lock' surely can't be healthy for the economy?

e) A much more significant issue to me is the difficulty of firing poorly performing staff in the public sector. This has a real blocking effect on manager’s ability to manage - and effectively means that poor performers can 'sit out' a manager who wishes to improve them/get rid of them.

f) Coupled to this are the redundancy benefits, which are ridiculously generous – again it mitigates against the public sector being able to flex/adapt in a way that many of us would want it to – we simply can’t afford to fire staff – which means we have them around, not being that productive.

g) And on productivity – some bits of the public sector are fantastic, some aren’t. Some that aren’t are because of the people, some are because of the legal strictures and/or ‘government’ (i.e. ministerial) targets we operate under. Being able to distinguish between these will be key to this wave of reform being successful.

So to sum up – yes we’re well rewarded, do some of us work dammed hard – yes. Pieces like this a great starting point for a proper, rational debate, but all the mood music from the politicians is that they are going to make some arbitrary axe swings, with little idea of whether they will be effective / even vaguely fair. Rather bizarrely, this will then suit the left wing public sector unions (I’m not a member) – who are spoiling for a fight. So instead of a rational managed process of reduction, I feel its going to be slash and burn and strike – all jolly good for headlines, but not much else.

57. At 5:44pm on 18 Jun 2010, Dr_Doom wrote:
41 Kevinb

"They don't need to, I reckon they can cut already agreed pension entitlements using existing legislation if they absolutely needed to."

"Actually they can under current Employment Legislation, although it would be better to negotiate an agreement"

I was taking already agreed pension entitlements to mean benefits accrued to date. The only way to renege on these benefits is for the company to go bust and for there to be insufficient assets on wind up.


Nobody is going to touch benefits accrued to date, nor should they..they will be completely secure

58

You are being very naughty

Doctors have a unique position, and can be in an employers scheme AND have a private pension

If I were you, I would stop moaning, especially after Frank Dobson left his brain at home when he 'negotiated' the current contract

Stephanie

Please will you differentiate between the pension arrangements for Civil Servants and those for Local Govt employees? As one of the latter and with friends in the former I know the schemes are different. The "world" should also know the difference so we don't all get lumped in together as "scroungers from tax payers".

We are tax payers as well - AFTER we have retired as well as before!

Public sector pay and pensions comes from everyone's taxes. It seems rather indefensible to be taxed to pay for someone else's pension when I can't even afford one myself.

It is worth remembering that for a long long period of time pension contributions from people like teachers didn't go into building up a pension pot...they were happily used by governments as another element of general taxation.

It is also worth remembering (it seems to be forgotten in debates that talk about 'the taxpayer' funding public sector pensions) that public sector employees are taxpayers.....and for those retired public sector employees luck enough to have a pension that exceeds the basic tax allowance (many don't)...they pay tax on it...so are still taxpayers in retirement!

As a teacher approaching retirement I know I won't starve.....but my 'gold plated pension' will not be that much more than the current average teacher's pension...which is about £9000 p.a.

This needs to be restated...the average pension for a teacher, retiring from what is basically an all graduate profession, is approximately £9000 p.a. before tax.

I seem to remember that MPs' pensions related to Civil Service pensions. Is this still the case? If so, wouldn't it be good for the Cabinet to set an axample?

9. At 3:41pm on 18 Jun 2010, stevebrass wrote:

Yes, pensions are complex, but don't think that all public sector schemes are unfunded. Many local government schemes are run as funded schemes, and contribution rates alter to meet the demands put on the scheme.
But just think about the unfunded schemes for a minute. Yes, it may well be true that NOW the contributions being paid in are not enough to meet pensions being paid out, but when these schemes were set up the converse applied. Did governments complain about that? No, they just spent the money.
This comment is correct that most local authority are funded. I joined a local authority for a salary about 10% less than I got in the private sector and in both cases pension scheme membership was compulsory. Employee and employer contributing similar amount. Three factors have created potential problems, my LA employer quietly stopped paying their share for more than 10 years, Gordon taxed pension fund investment income and privatisation has reduced the number paying into the fund. Any crisis has been created by politicians but it looks as though employees are going to suffer the consequences.

Just out of interest does anyone have the past figures for the surplus/deficit on these schemes so we could look at the NPV.

As Stephanie said "In 2008-9, you might be surprised to hear that the NHS pension scheme ran a big surplus: it paid in £2.1bn more to the Treasury than it paid out."

So it shows that sometimes these schemes run a surplus and I imagine when they were newer they were almost always running a surplus as people hadn't massed many years service. This surplus was then taken by the treasure and spent on services. This would mean that the people complaining about the current deficit were more than happy to take the money in the good times (in the form of more public services for their tax's) but ofcourse aren't willing to have it the other way round.

I'm in no way sure it would balance but would be interested to see what the NPV of the money the taxpayer has taken way from these schemes compare with what it is now having to pay in.

I'm sure you can tell that I have a vested interest, although as people have said my LGP scheme is "currently" in surplus and with only 2 years I have very little amassed in it.

"Ask the average employee in the public sector how much his pension is worth, he is unlikely to say that it is worth another 30-40% of gross salary. But that is almost certainly what it would cost a private-sector employer to offer a pension on the same terms."

I have no doubt that my public-sector pension is potentially worth at least 30% of salary. On the other hand, when I worked in the private sector, I was earning at least 100% more salary, and could certainly return to a job paying at least that if I returned to the private sector (as indeed I may have to). So I could buy myself a better pension than the public-sector one I'm currently accruing and still have a healthy pay-rise.

No one goes into public service for the financial rewards.

so theres a hidden £10bn per year hole in public sector pensions, which is an average of £2000 per person, which still means I'm earning £15k less than private sector graduates I know with worse degree's than me.

if people want well qualified teachers and other public sector workers (which provide invaluable services) then you pay for them.

Never have the words `Green eyes of the Yellow God` been so apt....We havent got a pension so neither should anyone else....Its about the time the jealous simply learnt to grow up....

64. At 5:59pm on 18 Jun 2010, presario wrote:
When I joined the civil service from the private sector the civil sevice salary offered was about 6% less than the salary I earned in the private sector; to take account of the non-contributory pension scheme.
So I notionally paid into a pension via my reduced salary. The disadvantage was that the pension would be calculated with respect to a salary that would be at least 6% lower than that I would have earned in the private sector as a professional civil engineer.
Can someone explain to me why I am, and other public sector workers are, being demonised?

Saying that final salary schemes are no longer affordable, is not demonising anyone

It merely states a fact

A solution for our collective woes would be to Nationalise the Utilities just like they used to be when public servants, rank and file, ie, the majority of them were on 1.5% and 2% pay increases while the private sector were getting 5%. The public sextor had to wait for nearly two years to get a pay rise only for Thatcher to rip up the pay agreement and they had to wait another two years for the lowest pay rise in years. Tax relief on mortgages was phased out. Then there was VAT. The public sexctor paid the same tax and National Insurance rates as the private sector...every three years you work for the government for one of those.....annual tax and National and Insurance added together is roughly a third of your income.

What would we gain by nationalising the utilities. The employees would become public employees which would give low pay rises but they would still work one year in three for the government. The excessive profits and fat bonuses paid to the non producers would go back into the public purse.

I am now retired and I would like to know what has the government done with all the tax and insurance I have paid all my working life?

As the popular song goes "Will the last one to leave England turn out the light".

Perhaps the easiest thing to implement to cut down on the effective amount being paid out to the higher paid public sector retirees is a super tax on large pensions and that could hit our other hate target the bankers too.
Another possiblity is to dictate how a certain portion of the pension is spent and this could apply further down the scale of pensions too, for example every one must make their houses energy efficient and the better off must buy photo voltaics. IE the point is the money is needed to invest in this countries future (energy security, education and growth of industry), not for rich retirees to push up asset prices.

Having worked in insurance (actuarial departments specialising in the valuation of pension schemes) and banking for over a decade I'm frankly stunned at some of the idiocy of the the first suposed home truth. If public sector salaries go up who foots the bill? The taxpayer as always! The fact that the higher salary generates a higher contribution back to the treasury is because the same flat rate is applied to a bigger number, quite simple mathematics to be honest. What the real issue is, is that the base contribution rate is actually a lot lower in the private sector because it is linked to your current salary rather than your final salary as the vast majority of people's salary rises over time hence the generally much longer service of people employed in the public sector to take advantage of said benefit (maybe steph should learn about accrual rates and how these benefits are actually calculated and weighted by lengthy service). To compound this the attitude of some public service workers, who are practically impossible to sack despite ineptitude results in frankly shockingly low productivity hence the need for so much sub-contracting! As the Office of National Statistics recently pointed out the average public sector worker actually earns 30% more on average per hour worked than those in the private sector! So the moral of the story is that if you want to work minimal hours, never have your boss hassling you and get a gilt-edged pension then you should have joined the civil service years ago!

My Equitable Life pension was reduced by at least half by regulatory failure. So the government can easily get out of any public sector pension liability by regulatory failure and then ignore the hoo hah that may follow.

I take it that Mr. Clegg will not be touching on the subject of MPs and Ministers Pensions which are paid out of the Public Purse?

73

MPs need to set an example, and the current level of MPs pension benefits is unacceptable

50. At 5:15pm on 18 Jun 2010, James wrote:
If the public sector pay and conditions are so bad then why is it the grave yard of ambition, why do "hard-done-by" public sector employees stay there and put up with it?Go join the private sector?


I stayed in my public sector job, because I believe in helping serving my community, it was a job I wanted to do, I had the ambition to become a good member of the emergency services. Why then should I be penalised because I loved my job, like some second class citizen?

you may consider this a poor ambition and you are entitled to your view, I had wonderful job fulfillment at many incidents over my career, I could have went for a job in the private sector for more pay (almost double) doing similar work but only within that workplace, whereas in the public sector I would attend incidents at that workplace as well as the many varied challenges within my community, pay is important in that people must house, feed and clothe their families. I did not join the emergency services to get a pension, however I am now in receipt of my pension and I do appreciate it's value to me. Incidentally the private sector job along the road had until this year a non contributary pension, they now pay one percent of pay, where I paid eleven percent of pay!

If I can just remind you of a famous politicians point on statistics, there are lies there are damned lies, then there are statistics.

With reference to private sector pensions, perhaps if Gordon Brown had not robbed the private pension pots of billions of pounds then many would still be in good health, perhaps stephane could give us more detail on Gordon's robbery.

72

i don't wish to denegrate your pension, yet I suggest you try and find out what buying a £9000 pension would cost, if you bought it on the open market

It would a lot more than you have paid in (I don't have a problem with this, you just need to understand this point)

In addition, you will get 3/80ths for each year of completed service as a tax free lump sum

I am not sure what you think a teachers pension should be?

Those who argue that public sector employees are lower waged so that they get a better pension need to examine the last set of labour market statistics before the recent election. Once bonus payments were taken into account the average public sector wage is GBP 462 per week and the average private sector wage is GBP 459 per week. I would then say that in all practical terms there is no salary difference between the private sector and the public sector.

We have a mess and Stephanie has set out the questions quite adequately.

The public sector pension is a promise to pay in the future guaranteed by the political class. This is not what I would call a pension. I call it a debt. Yet another government debt this time owed to their employees. And Robert Maxwell was called a rogue!

Friends and acquaintances who work in the public sector all contribute from their salary to to their pension funds. The percentage varies but what has always worried me, and them for that matter, are those contributions funded? I bet they are subject to another of those imaginative pieces of government accounting.

I have worked for the last thirty years in the private SME sector. I do not have a final salary pension. The number of people I know in the private sector with final salary schemes is now very small and they all work for large players in their particular industry. My money-purchase pension fund has been periodically filched by both the government and the administrators. Now it has hardly grown other than by my own contributions for a number of years even prior to the banking collapse. After that event I even had one part of it going backwards for a time. So I know all about the terrors of the pensions industry. Hopefully when I retire in three years time, God willing, there will be just enough with my old age pension to get by. And I accept that I am one of the lucky ones! Sometimes life isn't fair but you have to adjust and move on.

So what do we do about public sector pensions?

The question of fairness arises when one considers that the money to pay public sector pensions comes out of the pocket of the taxpayer into the pocket of the public sector pensioner. This is quite disgraceful but blame cannot be apportioned to the pension recipient of what is an appalling situation. They are as much sufferers as the taxpayer: they are also the taxpayer as well.

The only way forward that I can see lies through the establishment of a form of minimum pension income standard below which nobody can fall. This can be enhanced depending upon contributions and salary grade but overall the liability to the taxpayer must be reduced without jeopardising the welfare of the pensioner although their incomes will suffer. There has to be some sort of legal precedent based upon failed pensions schemes in the past and this is much a failed pension scheme as any other.

We have to find an equable solution. However, we are now going to have to listen to all the bawling from those who don't want to lose their rights. There are no rights these days; only debts.

#68. At 6:02pm on 18 Jun 2010, Kevinb wrote:

"57. At 5:44pm on 18 Jun 2010, Dr_Doom wrote:
41 Kevinb

"They don't need to, I reckon they can cut already agreed pension entitlements using existing legislation if they absolutely needed to."

"Actually they can under current Employment Legislation, although it would be better to negotiate an agreement"

I was taking already agreed pension entitlements to mean benefits accrued to date. The only way to renege on these benefits is for the company to go bust and for there to be insufficient assets on wind up.


Nobody is going to touch benefits accrued to date, nor should they..they will be completely secure"

Crown employment is subject to different legislation to Employment Law. Any agreements to our T&C's, pensions and compensation scheme have to be agreed with unions BY LAW. PCS (Civil Service Union) have just won two battles in court to stop the compensation revisions the government (previous one) imposed without negotiated agreement on 1 April 2010. The detrimental conditions have been revoked BUT all advantageous conditions have been retained. Good here innit :)

The only alternative is to change the law which will affect the whips and will take ages to get through parliament. Now that's going to happen isn't it.

I'm afraid the debate about cost merely serves to hide the real issue which is the gross inequality between public and private sector pensions.
Of the 26 million private sector employees only 1 in 10 are fortunate to be active members of defined benefit pension schemes similar to those enjoyed by the 5.4 million public sector workers. This ratio is only going to fall as more employers follow Barclays example of closing their final salary schemes to existing members.
Of the rest, 1 million get some support from employers as members of a defined contribution scheme, but the other 22.4 million are on their own. For these folk, £100,000 of savings will buy them an indexed annuity of about £3,000 per annum at the public sector retirement age of 60.
The public sector employment contract is subject to the same employment law as the private sector and could be changed just as easily as those at Barclays.

Stephanie, can you give your readers a little more demographic information about the recipients of public sector pensions and their average annual pensions. Wouldn't it be fair to say that the size of the pension bill is due to the large number of people in the sector, not because individuals are cashing in? And wouldn't it be fair to say that the majority of public sector employees earn below average incomes through most of their working lives, have had almost flat line payrises over the past five years, and pay in a good proportion of their incomes to their pension shcemes?
People in the private sector have the option to do this, but many choose to spend or invest (sometimes in high payout high risk investments) their incomes rather than put money away for the future. And then there is unhappiness when they approach retirement age and realise they haven't really made much provision for themselves. Their comfort should be that they've probably earned - and spent - more over their lifetimes than the average public sector worker.
So let's have a bit more analysis of this situation rather than fuel the rather spiteful people commenting here who simply want to take money away from the least well off. As always, the instinct to greedily stuff all available money in your own back pocket regardless of impact on others, ('greed' for short) is coming to the fore under this right wing zeitgeist.

Stephanie - could you perhaps tell your readers what your position is in relation to a pension and whether this might impact your view on this issue.

#82. At 6:27pm on 18 Jun 2010, Nathan_The_Red wrote:

"So the moral of the story is that if you want to work minimal hours, never have your boss hassling you and get a gilt-edged pension then you should have joined the civil service years ago!"

You couldn't explain that to my boss could you, he's a real pain in the butt who never stops whining all day and insists I work at least 45 hours a week. If you can just get him to understand how it's supposed to work I'll be much obliged.

89

IT will, yes

Over the years I was in the Civil Service (1964-2002) I did not notice any queue of people panting to come in from the private sector - largely because salaries in the private sector were considerably higher on average.
I certainly joined largely because of the pension entitlement.
For those who were less perspicaceous to now demand that I should lose some or much of my income reminds me of the three pigs (an apt animal!).

I'm glad to see a more balanced picture of the rewards of working in the public and private sectors being pointed out in some of these comments: Public sector workers accept lower salaries and fringe benefits in exchange for better pension prospects. Any comparative judgements of fairness should focus on all aspects of reward (not just pensions), and should be made over the whole economic cycle, bearing in mind that private sector workers tend to do better during periods of strong economic growth, while public sector workers do better in periods of slow growth or recession. As a Liberal Democrat voter, I find Mr Clegg's opportunistic pandering to hte populist right-wing press profoundly disappointing.

I see.

First the rich private business Lobbies destroy and remove Private Pensions, and now, so they the Rich can have Tax Cuts they wish to destroy the Public Sector Pensions.

This Tory Gov't is completely out of touch with the People and reality.

As with the BA stewards, people signed up for these jobs based upon the employment package, perks and pensions. To alter these conditions because economic conditions have changed is grossly unfair, but the alternative is an even greater travesty. If the cost is so high that it endangers the organisation or disadvantages later employees even greater, then the government needs to bite the bullet and take the firm decision.

There is no easy answer in all of this and we will all have to suffer, but it has to be done fairly and giving emphasis to those who are having rights removed.

I think the article completely misses the point.
While it is difficult to reduce the entitlement generated by past contributions, you can change current contributions and the value generated by them. This was last done in 2007, which included a condition that all future funding increases will be met equally by employers and employees, that all new entrants will have to work until they're 65 and that the final salary calculation will be computed in a slightly different way. Future changes could, for example, segment service and calculate future service on a different basis such as LPI instead of full indexation or final salary based on the average of the final 10 years.
The value of a final salary pension can be reasonably assesssed by calculating the actuarial value required to fund it. That it is not being funded in that way is irrelevant; the actuarial calculation will show the current contributions required to fund that pension and if the contributions are less, that pension is unnafordable.
That the private sector no longer provides index linked final salary schemes suggests that the real actuarial costs are not being met and it is absolutely fair for Nick Clegg to say that the disparity between private and public sectors is unfair.
We all know that the cost overhang in these types of schemes will last well into the medium to long term, but surely after so many adnministrations having dodged the issue it is time to start laying the foundations for sustainable public sector pensions in the future.

Of course, the fact that Investment Bankers managed to destroy the Investment Portfolios of many Private Pension Schemes is quickly forgotten by the nonworking Tory anti Public Sector bandwagon.

I see the Plan to try to make Britain just like America, is still in progress.