Public sector pensions face radical reform

30 July 2009

Changes will have to be made to unsustainable public sector pensions in order to appease private sector workers with less generous schemes and taxpayers who perceive "a pensions apartheid to be getting bigger", a senior government official has revealed, writes Dean Carroll.

Among the radical options for reform being debated by experts are increased employee contributions and raised retirement ages, public service cuts, or council tax rises to pay for public sector pension scheme shortfalls.

Bob Holloway, who manages the Local Government Pension Scheme (LGPS) at the Department of Communities and Local Government, told delegates at the CIPFA conference in Manchester that less drastic reforms could include higher and lower membership bands. It would mean those earning more than £75,000 would pay a higher level of contributions while a new lower band might attract less well-paid staff who had opted out of the LGPS. Another option could mean public servants receiving pensions based only on career-average earnings rather than their final salaries.

"The LGPS is under threat, something has to happen – things may even happen before a general election," Holloway said. "If MPs' very generous pensions change, as has been indicated, then other public sector schemes may well receive some pain as well. There will need to be something more major than a sticking plaster. Unfortunately, people are refusing to die."

All the main parties agree that public sector pension levels will have to be reviewed, but political leaders are unwilling to expand upon the need for fundamental reform with detailed plans. Conservative shadow chief secretary to the Treasury Philip Hammond said it was unsustainable for 90 per cent of public sector workers to retire on final salary pensions while only 5 per cent of their private sector counterparts enjoyed such benefits.

"Once we are in government, we will come up with a solution that will make public sector pensions affordable, but existing accrued entitlements will be adhered to," said Hammond. "We cannot ignore the challenge of unfunded public sector pensions."

Some analysts predict that schemes like the LGPS could take 20 years to recover the deficit caused by the economic downturn; and poor investments in Icelandic banks and hedge funds that had collapsed.

Acknowledging that "pension envy" had become prevalent, principal consultant at financial advisory firm Mercer John Livesey insisted that it was up to government to champion schemes including the LGPS.

"You cannot simply abandon our public sector pension schemes because if we do that then the state pension may have to pick up a big deal of the tab," said Livesey.

Labelling current public sector pension schemes as "politically unsustainable", Tony Travers of the LSE said: "The first thing likely to give will be the retirement age and it could happen pretty quickly."

A report by the British-North American Committee put the cost of public sector pensions at £1 trillion or 85 per cent of GDP.

COMMENTS

The situation is obscene with average contributions by PS workers at 10% and the rest of us having to pay the other 90% that should be a criminal offence and the PS workers draw the state pension also for a job thats for life no risk have you ever heard of anyone getting sacked from a PS job its nearly impossible because the bloody unions start shouting and everyone backs down.
We need a government to break these unions they are the reason for the financial turmoil we are in by insisting on unrealistic terms funded by the taxpayer.
Move the PS retirement age to 66 andstop making the taxpayer fund these pensions,
Al - Devon

I have watched over the years friends earn more money in private sector jobs, they also chose to save small amounts ( or none ) towards a pension, I chose a public sector job for stability and accepted the shifts, basic pay, no bonus, small yearly pay rise, but good pension ( but also large monthly contribution ). I have not got wealthy, but neither have I become poor, all I now hear is jealousy that I will get a decent pension. I joined an occupation that put you into such a pension and required 11% monthly contributions, private sector people did not want to choose a pension that expensive and wanted to live for the moment and, as usual, it is now someone elses fault it has gone wrong for them.

Ian mcmahon - Oldham. UK. Local government

Up until 15 years ago the teachers pension scheme was a net contributor to the governments tax revenue, at that point I never noticed people complaining about Ps workers pensions. Even now unlike most final salary schemes the max is 50% of final salary rather than the usual 70%. The other side of this equation is the relativly poor renumeration for the job, most of my friends "earn" much more than me for shorter hours.Finally teaching is not the so called safe job for life, 2 teachers lost their posts in my school in the last year. So if AI thinks its so great come and join us just for the pension. I thought not!
KM - teacher dorset

so not only have we been shafted over the poor exchange rate due to the greed of the money men i have just been informed that i will not be receiving my promised annual cost of living rise this year . well a big thankyou to all the faceless chinless gutless wonders who are responsible for this decision . i hope you enjoy your well earned inflated salaries and of course related bonuses
steve gibbons - chiclana spain

Ever since I've worked in the public sector the excuse I've been given for being given lower pay than in the private sector is that my pension is better. If that is now to be taken away from me will I be recompensed for all those lower pay rises? Similarly if I give up my pension will bank and building society workers give up their cheap mortgages and loans? Will retail workers give up their staff discounts? Will private sector workers give up their company cars, or their generous bonuses? As a government employee I get none of these things. This economic crisis was caused not by PS workers but by greedy bankers in the private sector, most of whom receive bigger annual bonuses than my entire pension fund. If anyone should suffer the consequences of their greed it is them.
SJN - Lancs

I recall many people bragging about being in well paid jobs, while i got small payrises in a public sector job. I am a nurse and can get paid £30- £60 per hour for my speciality, done through an agency. If my job security and pension are to be taken from me. I might as well just do agency all the time.

We are not in this turmoil because of the public sector. I would like any private sector worker to tell me about the payrises they had , under inflation, when the country was experiencing economic growth. The job they have done well, and sometimes for free, in ones own time, to be constantly brow beaten by tabloid newspapers. Please include the last time you were punched in the face, or had infected body fluids thrown at you by your clients.

I am a graduate and at the time i graduated, chose a secure job with a good pension. People laughed at my career choice: as their starting salaries were much better. Well they took the higher salaries and i still have my job and my laughable salarly, stop complaining. Keep cutting the money to public services and you will have the services you deserve.
jane jones - scotland

public sector workers do not pay anything like enough contributions to fund their over generous pensions,the burden is paid for by private sector workers working to at least 65 and with paltry pensions,on top of these final salary schemes they automatically receive the basic state pension,with no questions asked ,and they complain about paying tax,most of us wish we recieved enough pension to pay tax.
jeff wiseman - glenrothes/uk/pensioner