Today sees the national public service strike over pension rights, a strike that is proving highly divisive and will probably end in the public service workers losing a lot of the goodwill they accumulated during and after the anti cuts march in London earlier this year.
There's an awful lot of willful ignorance being bandied about by the public service unions over the pensions issue, probably deliberately so, as they could not tell their members the truth when it comes to public sector pensions for fear of losing their positions of power.
First, here's some simple maths. Let's assume that two workers, one public one private sector who end their careers today on identical salaries having had identical average salaries over their working lives. Joe Public will have a pension four or five times the size of Fred Private, or, to put it another way, Fred Private would have had to contribute at least five times the amount of Joe Public over his working life to his private pension to arrive at a pot large enough to achieve a similar future monthly pension payout to Joe Public. This is because public sector pensions are based on final or average salaries, a luxury afforded to only about 10% (and falling) of private sector workers, most of whom have to put up with the much less attractive defined contribution schemes. The reason for the continued decline in private sector final/average salary schemes is simple - they are unaffordable as there is no investment plan available that gives the returns required to finance them.
It used to be the case that public sector workers earned far less than their private sector counterparts, and the generous pension scheme was a compensation, but this earnings anomaly simply no longer applies. According to Paul Lewis of The Money Programme the annual cost of public sector pensions is some £30bn, of which £26bn is paid for through exisiting low level employees' contributions and Employers' NI contributions. The shortfall of £4bn per year (or up to £6bn depending who you listen to) is being paid for by the tax payer. By the way, £4bn is two thirds of the value of the Coalition cuts programme currently chopping away. Yes, of course "the tax payer" includes Joe Public, but why should Fred Private contribute to Joe's pension via his taxes when his own pension is paltry in comparison? Also, as the population lives for longer these costs will only go one way, at least for the short term. It is simply unsustainable, even Ed Millibrand acknowledges this. Another example of the over generous public sector pension scheme is Joe's ability to take his retirement pension at 60. I can think of six people I know personally who have done this, and who are all doing very nicely thank you. This is being kicked into touch under the planned changes, and is there honestly any argument to be made against it?
The main reason for this strike appears to be the planned increase in Joe Public's contribution to his pension. It is calculated that a teacher will face a 50% increase in contributions to 9.6%. They should count themselves lucky that even after the proposed changes their pensions will still be way in excess of what Fred Private could ever afford.
The Tories, as ever, have shot themselves in foot in the way they have mis-handled this, or rather the way in which they have not handled it at all, simply hoping they can impose all the changes in one fell swoop and without negotiation. Cameron would have done well not to mention pension changes and deficit cuts in the same speech as it gives the unions the excuse they're looking for, linking the two when there is no link. No, the public sector did not cause the current crisis, but I'm afraid that's entirely irrelevant where this dispute is concerned. Public sector pensions are unaffordable in their current guise, regardless of whether or not the country is up to its neck in debt.
The unions for their part would have been far better advised to make the stike against the too hasty and excessive cuts and the philosophy behind them. I marched with you in London on that theme, but you can take a hike on this one I'm afraid!
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