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The public-sector pension gap

Stephanie Flanders | 08:45 UK time, Wednesday, 7 July 2010

The government has stolen some of the Public Sector Pension Commission's thunder by putting public sector pensions on the agenda so soon after the election. But ministers will be grateful to this independent group for putting so many eye-popping statistics into the public domain.

public sectorPublic sector unions will note that the report has been sponsored by the Institute of Directors and the free market think-tank, the Institute of Economic Affairs. But at least one of the report's authors - Ros Altmann - has often been on workers' side in calling attention to the dwindling state of private pensions. Others, such as Peter Tomkins, of the Institute of Actuaries, are recognised experts in the field.

Many of the key facts and arguments in the study will be familiar to readers of my and Robert Peston's recent posts on the subject. In essence, the report says that the official statistics are not capturing the true cost of the promises being made to public sector workers in unfunded pension schemes (which means most of them - the big exception being workers in local government, which have funded pension schemes.)

When the government estimates what its future pension liability is worth, it uses a fixed real discount rate of 3.5%. If you do that, the future promise of a guaranteed pension that members of public sector schemes clock up each year is worth about 20% of their salary - which is roughly what employers and employees pay the Treasury to take on that future obligation.

But right now, real interest rates are much, much lower than 3.5% - meaning that you would need to put aside a lot more than 20% of salary today if you wanted to meet that future pension obligation in the future. (Anyone who has recently looked into the price of annuities will grasp the problem.)

If you discount the pension promises by 0.8%. which is the current real interest rate on indexed-linked government debt, the report shows the true cost of these schemes is more like 40% of salary - or more than 70% in the case of police officers and firemen.

Is that the right way to value the promises? I think it depends what you are trying to capture.

If you want to show public sector workers what their pensions would cost if they were replicated in the private sector, then this is clearly the right figure. Right now, 40% is what a funded pension scheme would need to put aside to be sure of meeting the future obligation (the report recounts the Bank of England going through exactly this process with respect to their scheme).

This is worth doing - as I said in that earlier post, public sector workers ought to know what their pensions are worth, for the sake of transparency and for their own sake in comparing their public sector job with one somewhere else.

Equally, if you want to "mark-to-market" the obligation on the government's balance sheet, as many private companies must, this is right discount rate to use. But there is a reason that these schemes are not funded - it is because they are provided by the government.

The government can do things that private companies can't, because it has the unique capacity, through the generations, to raise tax revenues to meet its future obligations. It doesn't have to go out and sell gilts on the market right now to meet all those future promises (even if some people would like it to).

So you could also make a case for discounting the stock of liabilities at a long-term average real cost of borrowing for the government, rather than the rate at this one point in time. On that basis, the government discount rate still looks too high - but not quite as bad as the commission suggests. For 10-year index-linked gilts, the average yield since 1984 has been 2.9%, though that average is clearly falling over time.

Apparently, the Treasury put a similar argument to the commission. In response, the report calculates what public sector pensions are worth using a discount rate of 2%: the 40% figure falls to about 27%.

Anyone involved with private sector pensions knows how much "pension deficits" can change, depending on the discount rate used. The answer given by economists tends to be that there is no right answer - you use different rates to capture different things.

But the basic argument of the report is hard to quibble with: public sector pensions may be "affordable" in their current form, but it is difficult to believe they are sustainable, at a time when private-sector pension provision has fallen so far.

Only 11% of private sector workers are in final salary schemes today, but 94% of public sectors workers are. Well over 50% of private sector workers don't have any employer-sponsored pension scheme at all.

This report's greatest contribution to the debate lies less in the scary numbers but in the range of options it offers for reform, and in the words of good sense it offers to those who must come up with proposals on this for the government - for example, they make the point that the prime minister's promise to cap public sector pensions at £50,000 a year will do very little to cut costs because it would affect relatively few retirees. The real savings come from capping the salary on which pension benefits can be accrued. The report reckons that a £50,000 cap on pensionable salaries in the civil service would cut costs by 2.3% - not a huge amount, perhaps, but far more than a similar cap on the pension that can be paid out.

This is no page-turner (at least for normal human beings). It is, after all, about the ins and out of public sector pensions. But any minister who wants to lay down the law on the subject would be well advised to give it a read.

Comments

Page 1 of 4

  • Comment number 1.

    It would be interesting for someone to work out how much the private sector save by well over 50% of them making no employer provision for pensions and what the cost of this to the taxpayer is. It would also be intersting to see what the net effect on government expenditure would be if some of these changes were implemented i.e. reduction in employer contributions set against government top-up of low pensions (unless the intention is to reduce the pension tax-credit)
    Once again I fear we are seeing a transfer of risk from the private sector to the public - oh well what's new.

  • Comment number 2.

    Time to start canning some of these public sector workers unless they really are vital to our nation. Also time to equalise retirement age as well.

    The truth is out and we can ignore the unions they only have one tune. Now change for our members.

  • Comment number 3.

    Once again, public sector pensions are being attacked as if they are all the same –they are not; and once again the argument is being made that as private sector provision is rubbish, then public sector provision should be reduced to this level, rather than working to ensure that ALL workers get an entitlement to a decent pension.

    This is not an official report, but it is clearly inspired by and designed to support the coalition’s attitudes and thought processes.

    Yes future government liabilities need to be assessed and ways of meeting them considered. But as Stefanie clearly points out, these headline grabbing figures are calculated according to snapshots of the current position relating to current interest rates. They can and will change, but this will be too late to prevent rabid right-wingers frothing at the mouth in envy, and will damage any attempt to consider this issue calmly, carefully and intelligently.

    Yes too, the country’s economic and financial circumstances are difficult, but not nearly as difficult as Cameron and Osborne would have as believe in order to disguise the ideological nature of their slash-and-burn operation. Will we ever see any positive policies from this government to put us back on the road to prosperity and equality, or will they be able to go on with their wrecking policy unhindered until they are finally booted out?

  • Comment number 4.

    Over the past decade or so the unions and Labour government, have with the EU, gradually pushed back the parameters to make these pensions more, not less inclusive. This has benefited part-time workers, definitions for who is eligible for a spouses pensions etc.

    The only people who have highlighted these changes are pensions experts such as Ros Altman, and to be honest nobody has been listening.

    What the average man on the street doesn't realise is that it makes a massive difference to their taxes for the future, like every taxpayer being asked to take out a large loan for the future but not being told what for.

    The whole thing just has to stop. We are being fleeced.

    When the unions talk about about the cost of the average pension, maybe they should be asked the 'capital' cost of that pension and not just the daily, weekly or annual cost.

  • Comment number 5.

    Back when the last Tory government was in power i remember being told that the state pension was not the way forward, get a job and consider your pension options. I did this, i choose a job with a low wage but a contributory final salary pension. A job in the NHS helping people, yes i could have got more money in the private sector, but i valued the pension. A pension promised by the government, part of my reason for 20 years service to the public. I pay monthly conributions at a rate set by the government.

    It would be a fundamental breach of trust for this government to renage on the promises made to me about my pension. Its just wrong. Why are we trying to bring everyone down to the lowest common denominator?

  • Comment number 6.

    'affordable' is a variable dependent on the willingness of other parties to pay shortfalls by one means or another. Sustainable isnt a variable.

  • Comment number 7.

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

  • Comment number 8.

    Fewer public sector workers through redundancy and early retirements will put a strain on the funding demands and reduce the contributing base cf BBC. The withdrawing from proper schemes whether private or public will have major social policy and political implications and one way or another the state will have to provide either by stepping in or/and meeting a large increase in those claiming means tested benefits. The should be a royal commission on pensions it is a scandal.

  • Comment number 9.

    Why does the BBC seem intent on only providing half the story, which is the half that includes all the supposed 'bad' things regarding public sector pensions?
    In your recent blog about this subject you stated that the NHS pension pot carried a surplus of £2.1 billion. Why wasn't/isn't this ever mentioned on your tv broadcasts. Most annoyingly though, last night you raised the specific issue of Police and Firemen (it's been Firefighters for years by the way). Yes, they can retire earlier than most, but why did you conveniently forget to mention that they pay a huge 11% of their salary into their pension, not the 'average' 6%. Yes, it's still a good pension due to employer contributions, but please state all the facts, not just those that appear to be the most scandalous. I am a fire officer in charge of a District of nearly 450 people, 10 fire stations and a budget of £25 million. It would be interesting to see what my salary would be for a similar responsibility in the private sector. You can bet it would be over twice as much as I earn now!! And I've paid 11% of that salary into a pension for over 27 years. I wonder what the BBC employee pension contributions are......???

  • Comment number 10.

    The public sector pension 'shock' is nothing of the sort.

    As soon as the Bank of England took its idiotic decision to abrogate all economic sense and break the rules of the last 300 or so years the pension shock was absolutely inevitable just as night follows day.

    True, the situation has been made worse by the inability of the actuaries to come to terms with increasing longevity, but the main culprit is the interest rates policy of the Bank of England. As the Bank has decided to destroy the price of money to one fifth of its previous lowest level the consequence of the decision on all pay-as-you-go pension schemes was absolutely inevitable. (This is one of the many reasons why the Bank of England's zero price for money policy is insanely stupid.)

    There in no solution apart from reducing pensions for existing and future pensioners to levels that can be afforded congruent with the insane Bank of England's interest rate policy - change that, and we can avoid the inevitable - but we can only do so by increasing interest rates NOW by a factor of 10! (If rates had only dropped to 2.5% we could have managed the situation - but it is impossible to manage at 0.5% - it is simply the arithmetic!)

    I wonder which buffoon in Threadneedle Street came up with the hugely destructive interest rate policy?

  • Comment number 11.

    Public sector workers have no idea how lucky they are with Pensions and Pay rises, compared to us professional Private sector workers if you look at the last 10 years. For example, in my industry IT Software, a typical good professional worker would have been lucky to have had 3 or maybe 4 pay rises over the last 10 years. At the same time we saw our final salary pension scheme removed to new joiners over 10 years ago! and for those long standing employees we've recently seen our final salary pension closed and our future pension value drastically reduced, in some cases by over £200,000! And why is this? because our employers realized that these sort of pensions were unaffordable going forward, what with a changing economic environment and people living longer. If our business is to remain profitable and competitive in this very tough market, it has to be done.

    Unless the government acts now, 10+ years down the line it's going to be one big gooey mess, and us private sector tax payers don't want to have to bail you lot out...

  • Comment number 12.

    I think the issue is not how overblown public secor pensions are, but how poor the privet sector provision is.

    The trouble is that the private sector say nothing when times are good and they ern far more than in that period, and then when times are poor they bleet on about how unfair it is.

  • Comment number 13.

    The largest part of the huge social security budget arises because a very large part of the private sector, employers and employees, fails to make adequate contributions to pensions. The existence of the Soc Sec net does act as a deterrent to private savings which suggests that Govt should impose more requirements on private sector employers and employees to make better provision for retirement. It would be helpful to have a comparison of the costs of subsidising those with inadequate pensions via the Soc System with the costs of subsidising public sector pensioners.

  • Comment number 14.

    "The question of why the majority of the workforce should be expected to pay through their taxes to support pensions that they cannot afford for themselves must be raised."
    --------------------------------------------------------------------

    This. How can we go on with a 2 tier pension system.

    Those that get it ALL for nothing and those that pay for it all and GET nothing.

    It's an unavoidable question (although the public sector as done an impressive job of avoiding it for a good 40 years).

  • Comment number 15.

    Providing for a comfortable retirement is a shared responsibilty between individuals, employers and the state.

    Private employers have persistently shirked this responsibility and now publically-funded employers and the state are also seeking to renege on their obligations.

    This has to stop and stop now. No more evading of responsibility on the lame excuse of being broke: somehow I don't see the taxman saying it's OK for a business or individual to refuse to meet their tax obligations because they are a bit short.

  • Comment number 16.

    11% of private sector workers are on final salary schemes compared with 94% of public sector workers! So 89% of private workers provide pensions for other people through their taxes that they can't afford for themselves. Unsustainable is what you quite rightly call it, to which I would add perverse and if allowed to continue likely to result in civil disturbance, I would have thought.

  • Comment number 17.

    Unless public sector pay and pensions are brought under control without

    delay the country will bleed to death and there will be rioting in the

    streets

  • Comment number 18.

    he he nice coffee

  • Comment number 19.

    PresterJohn100 wrote: "It would be a fundamental breach of trust for this government to renage on the promises made to me about my pension."

    I agree. However, the promises were made on the understanding that you would die a few years after retirement, and not a few decades. You need to keep your side of the bargain as well, and this means putting your retirement date back.

  • Comment number 20.

    I totally agree with 'Mose' - why not force the private sector to 'up' their pensions so that they are at a level equal to the public sector? This would mean both public and private sector workers will get a decent pension income on retirement.

    Oh, but hang on a second, this report was commissioned by the private sector so that public sector finances can be targeted and the private sector can benefit from tax cuts. We all know this is leading to the top rate of tax being cut back down to 40%. No wonder the private sector fat cats want public spending slashed because they will be the ones who benefit!

  • Comment number 21.

    MrTweedy wrote


    "The choices are:
    (i) 20% inactive and a 5 day working week; or
    (ii) 5% inactive and a 4 day working week

    or even a 3 day working week, if the price of necessities can be kept low (necessities being housing, energy, transport, medical care, etc).
    "


    While this sorts out the allocations, it remains a question how things get to such a situation. One issue is that management does not seem to be tending towards these arrangements at the moment. The other issue is what 'inactive' actually means. With a 3 day working week the remaining days become leisure time, and while here in the Czech Republic there is a great abundance of publically available nature to wander around and enjoy life in its most basic sense, places like the UK are unable to offer this in general.

    Leisure time can translate into boredom more easily and into crime. I think in the UK in order to put this into effect there would need to be some great efforts taken to encourage more interesting pastimes than street violence, drug consumption and petty theft/burglary. This is not to say it is not doable, just that I think the 'hidden GDP' of domestic production and innovation would need to be somehow measured and included into the policies.

  • Comment number 22.

    What will happen when both public and private sector pensions have been reduced to a point where nobody wants to pay for one and everyone is wholly reliant on the state pension in their retirement at age 70 (75) (80)?
    Methinks that the same people who are moaning about the tax that they have to pay to support pension contributions will be moaning about the tax that they have to pay to provide the extra benefits to the retired because no-one has any other source of income.

  • Comment number 23.

    I cannot understand why successive governments have just stood back and allowed the private sector to destroy their employees pension schemes. The senior management of these companies which have closed or reduced their employees pensions schemes still retain their own final salary pension schemes. Maybe that is why organisations like the Institue of Directors keep pointing the finger at public sector pensions to divert attention away from their own members duplicity.
    The burden of supporting their employees in retirement has been forced onto the tax-pay in general.
    I attempted to make provision for my retirement starting in the '80s, calculating that the state pension would disappear or be severely limited by the time I retired. I took out an AVC and an endowment mortgage as part of my pension planning. My company pension has disappeared, the AVC and endowment mortgage were destroyed thanks to successive financial market meltdowns, so I am now five years from retirement facing a bleak retirement.
    This coalition of the right is determined to emulate the private sector's agenda of forcing employees to make their own pension provision.
    Like thousands of others my experience of the financial services industry is one of losing thousands to their casino mentality.
    Yet we are being forced towards an industry with a proven record of financial mismanagement.

  • Comment number 24.

    I am struck by the historical timing of all this. These estimates are made at a time of the lowest interest rates in my lifetime (by some margin), and when the stockmarkets are still in intensive care following the banking crisis.

    We can hardly conjure up a worse circumstance for calculating the cost of pensions. Yet we are making calculations for 10, 20 and 50 years time. Some are justified by the demographics. However I would be very surprised if, in the medium term, the prospects for pensions did not improve significantly, as the world economy recovers. We have, for example, already seen the deficits in private sector pensions improve hugely as the stockmarket position improves.

    Underlying much of this is an unspoken element - a general hostility towards the public sector - the motivation amongst ministers that dare not speak its name.

    I am not here suggesting that matters do not need to be adjusted. I am, however, suggesting that almost certainly, matters are being significantly affected by the particular circumstances in which we find ourselves right now.

    In Ireland they have dealt with short term implications of public sector final salary pensions deficits by relatively small upward adjustments to the contributions of existing public sector employees.

    We have here a classic whipping up of hostility from one group - the private sector - to another - the public sector. Instead of attacking the public sector, why is the government not looking at ways for improving the position for private sector pensions, for example through tax breaks, and by examining the capacity for growth? What we have here is an ideology of levelling down, affecting most people, public and private sector workers, while no one does anything about the millions of pounds bonuses paid out to bankers whose excesses have been responsible for at least part of these problems. But then this government wouldn't focus on them would they.

  • Comment number 25.

    I am now retired. I used to work in the public sector. When I first started, I was the only one in my group of friends who chose the public sector. My pay was pretty poor. Through the years I saw my friends receive bonuses, company cars, shares in their companies, profit share, cheap loans, etc. The gap between their standard of living and mine got wider and wider. I had none of their benefits. What I did have was a decent pension to look forward to, one to which I contributed. The private sector then got us into the current financial mess. However, while the likes of bankers continue to receive their bonuses, those in the public sector can only look forward to a pay freeze, or worse. People who join the public sector tend not to do so to become wealthy and the vast majority don't. I don't think that can be said of many who work in the private sector. They enjoy the good times with their bonuses, etc, but now times are hard there seems to be a lot of whining and finger pointing, mainly at the public sector.
    Some have suggested that those in the public sector should take their chances in the private sector. None of my friends thought working in the public sector was a good career move 50 years ago and so it might be more appropriate to say that those in the private sector should take their chance in the public sector.

  • Comment number 26.

    I am a retired police officer. I joined the force in the 70's accepting the terms of the pay & conditions. The pay was terrible, less than I previously earned in the army, & I had to work my rest days to earn a living wage. This made the promise of a decent pension important. During my service the goal posts moved & our pension contributions increased to 11% of wages. The various Government Commissions made the rules and chose an unfunded scheme. Members were obliged to accept the conditions imposed by the rule makers who now seem less than happy with their lot. May I suggest that the real problem lies with wage differentials throughout both private and public sectors. These have caused the explosion in pensions in many instances. How can it be just for people at the top end of the scale to earn fantastic wages and then retire on pensions with an annual salary amounting to more than the life time wage of an employee on the minimum wage. To hit those on low pensions is counter-productive as it will only drive them on to pension credits. Therefore it is the differentials that need to be addressed.

  • Comment number 27.

    The question that should be asked is would you you NOW set up a scheme or organisation.

    The principle of the NHS was founded in a completely different era and they could not have imagined what is now possible and the subsequent cost.

    The same can be said for the Public Sector pensions. The same can be said for the pension industry as a whole. However Public pensions have some anomalies. If we look at the Police for example. How many of us would like to retire in their early fifties with what can only be said to be a gold plated pension. "They paid into it" i hear you all shout. Well that is true, although they would have had to pay at least 15% of their gross salary along with the employers contributions to have a pension pot anywhere near to what they are now receiving. This was not an issue when the pension was introduced as the life expectancy was far less than it is now. Then it was in the sixties now it is in the high eighties. Not bad, you contribute a fraction of the cost of your pension for about twenty years and then you receive a linked pension for thirty plus years.

    Now I know that not all public sector pensions are so generous and I feel strongly that we should protect those but the others must be reassessed.

    This appears out of kilter with the rest of us who are now being asked to work longer. One of my close friends has just retired at the age of 51 from the police. He has told me he was surprised by how generous his pension is. To rub salt into the wounds he has just been offered to take up a position as a civilian carrying out the same role as he was carrying out prior to his retirement. And you guessed it he has joined the pension scheme. He could not keep a straight face when he told me.

  • Comment number 28.

    Let the Public Sector keep their golden pensions - but make them pay the going rate for the privilege. Why should these be mainly unfunded?

    Why in this day and age are full pensions for PCSPS being paid at a retirement age of 60? Not even the Basic Pension or S2P will be paid that early. Life expectancy alone dictates that the normal retirement age should be at least 65.

  • Comment number 29.

    There is little new in the report, though for once it does explain how the current non funded schemes are paid for. My own collects 15B and pays 15B +approx 2B from the Treasury. OBR says this is latter is due to a blip in retirements for most government funded schemes

    But the real scandal is private employer Direct Contribution Schemes. The actuaries in various places say these will at best give people pension of 30% of final salary (or even 'career salary') and if they go wrong (do you remember endowment policies) you will be dependent on the state. So the best schemes in current terms yield a pension of &7.5K per year + the OAP for worker paid the median wage. Taxpayers are of course paying for the tax relief given on their payment into the their fund. (28%).

    So do tell us Steph what your arrangements are.. payment into the BBC Scheme or the BBC DC scheme for 'temporary employees' or a SIPP ( I guess the last :-)

  • Comment number 30.

    SleepyDormouse

    Here's an idea. Why don't you club together with some mates and by an island somewhere - I think Greece might have a few for sale - and then put your "vision" into practice? You can call your currency the Wonderpound as that would surely most aptly describe it. Pretty soon, you'll have people flocking to join the island as it beomes an industrial powerhouse with a welfare state the envy of the world. When its an unequivocal success, you can become a star, touring chatshows telling all how to perform this fantastic alchemy. Alternatively, the UK taxpayer can send a plane over to pick you all up once you're half-starved and treat you on the NHS.


    BTW who do you think are the biggest real buyers of Governement bonds? UK Pension funds. So by debasing sterling you just fleece private pensioners again. Well done Einstein.

  • Comment number 31.

    The cost of public sector pensions is not just about the method of funding, nor the comparative cost with the private sector. It is also about how the level of public sector salaries is set in the first place. Any method of comparison set up years ago with similar employment in the private sector must now be dubious.
    There are therefore two sets of calculation to be reformed - not just one.

  • Comment number 32.

    7. At 09:43am on 07 Jul 2010, SleepyDormouse wrote:

    I wish we could all live in your dream world. We would all be equal and drive environmentally sound Rolls Royce. We would all eat organically grown food and drink the new non alcoholic, alcoholic drinks.

    Unfortunately we do not and although we are an island we do need to trade with other nations. If we just print money then there is a knock on affect. That is our currency will be devalued and the cost of buying products, goods and raw materials will rise.

    There is truth that the fiscal actions required to run a nation are different to those of us. However there is one fundamental similarity and that is you can not spend more than you earn. You can borrow but you must at some stage pay it back.

    If life where so simple how nice it would be. But unfortunately life doesn't work that way. If it did do you not think that other nations would have done this already but maybe they just don't live in your dream world. And as with Pandora once the truth is out it is impossible to get it back into the bottle.

  • Comment number 33.

    STEPHANIE
    ALWAYS ENJOY YOUR ARTICLES. COULD I SUGGEST THAT YOU URGE THE COALITION TO LOOK MORE CLOSELY AT INTERNATIONAL COMPARISONS. THIS COUNTRY HAS A BIT OF AN ATTITUDE THAT SAYS THAT IT "WON'T WORK HERE"!

    NEW ZEALAND SORTED OUT PUBLIC SECTOR PENSIONS IN THE 80'S. CANADA ATTACKED THE DEFICIT IN THE 90'S AND REGULATED THEIR BANKS RATHER BETTER IN THE 0'S!

    THE UK COULD EXAMINE "BEST PRACTICE" & START APPLYING IT HERE ......DON'T YOU THINK, STEPHANIE??????!!!!

  • Comment number 34.

    I have worked in both the public and private sector. The public sector workers need to realise that the potential changes being talked about with regard to teir pensions have already happened in sweeping changes in the private sector. Private sector workers' pensions have been changed significantly - final salary schemes closed, frozen, contributions increased and switch to money purchase schemes. The private sector workers can't pay for public sector pensions any longer. A little known fact is that until recently the entire civil service wasn't just on a final salary scheme but on a NON-CONTRIBUTORY final salary scheme! These contributions which, arguably, should have been made by the huge numbers of civil servants are not in the 'pot' today. It is time to redress the balance.

  • Comment number 35.


    To SleepyDormouse (post 7):

    I won't pretend to understand it all but what you've written is fantastic stuff. Can you recommend any further reading?

  • Comment number 36.

    One of the differences between public sector and private sector schemes that makes comparison of the two difficult is that while the latter are funded, the former are pay as you go. The perceived problem is that public sector schemes are an excessive cost on the tax payer. As Stephanie Flanders pointed out in an earlier blog this isnt always the case. For instance in 2008/9 the NHS scheme ran at a surplus of £2.1 billion which simply disappeared into the Treasury (the Treasury giveth and taketh away). Now it would seem to me only right that there should be some smoothing here. For instance schemes that are simply unsustainable into the long term would need addressed. But how many of these are there? How many are in deficit for a small number of years before returning to surplus.
    Also what is to happen to the surplus? Because of their pay as you go set up the surplus disappears into the Treasury. Should it no be held in the scheme - even in the form of government loan stock - to be used in years when the scheme would otherwise return to deficit? To argue against this is to argue that "heads the govt wins, tails their pensioners dont".
    We might also ask, what sort of effect the many years over the last 50 (for instance) when public sector schemes ran at a nice wee profit, which was appropriated by the Treasury (a sort of alternative form of taxation), what effect on the present situation would leaving the surpluses in place (or as future claims on expenditure in return for helping to fund current spending)have had on the present financial balance of public sector pensions?

  • Comment number 37.

    The advantage the public sector has over private firms is not merely that it can raise taxes to pay pensions, it does not need to fund pensions by investment. It can rely on having employee contributions and budgets in the future to pay the pensions of the current generation. There is no need to rely on the performance of the stock market or to pay fees for investment advice. It is right however, that as is already so in many cases, the pension payments to former employees should be regarded as a charge on current budgets. Pension payments should then be regarded as part of a hopefully cost effective package, designed to attract good employees.

    Contributions are usually a proportion of wages or salary, so the income of an "unfunded" fund is effectively indexed to wages and salaries, provided the number of employees remains fixed. Because of productivity improvements in the economy as a whole, income is likely to increase more rapidly than retail prices. The public service covers an enormous diversity of occupations, so it is very unlikely that the total number of employees will diminish significantly in the long term, even if "public bad, private good" ideologues, like the members of the present government, occasionally manage to cause a slight dip.

    Private firms cannot rely on having enough employees in the future to cover pension commitments, they may even go out of business altogether, and therefore have to fund at least part of their liabilities. This makes it difficult to provide good pensions.

    The accusations of unfairness are not justified. Pension rights are part of the package that employers put together to attract employees. In a free labour market it is up to each of us to choose an employment package that appeals to us. If we choose a particular package and regret later that it does include decent pension arrangements, we have no right to envy those who chose otherwise.

    Nevertheless. something should be done to improve the standard of private pensions. The pooling of funds on an industry wide basis, as in Germany, or preferably a national basis, to give diversity, is an obvious possibility. The rates of contribution should be adjusted from time to time so that pension payments are more or less covered by current contributions. Investments should be regarded as merely a safety buffer. To prevent raiding of the funds for contribution holidays and the like, there should be legislation to protect them. This legislation should be embedded as deeply as the defective UK constitution allows.

  • Comment number 38.

    Unlike private pensions, public sector pensions are paid out of current contributions. Money is not "set aside" for collection later, as one might in a private pension.

    Why is there no mention in this report of the fact that NHS contributions currently more than meet NHS pensions?

    The argument seems to be: "Private pensions have gone down the toilet, so it's easier to punish nurses and teachers than it is to take on the greedy employers who have abused their workers' trust for so long."

    And let's again nail the myth of the "gold-plated" pension: the average local government pension is £80 a week, which falls to £50 for women. And that's money which successive governments have promised people who have dedicated their lives to public service.

  • Comment number 39.

    There is a bigger story playing out here. The changes to public sector pensions and the raising of the State Pension age are part of the Tories policy (not widely broadcast) to redress the balance between the generations. Not many people realise that the Tories believe that the baby boomer generation have stolen from their children by hogging benefits/ resources for themselves and they want to take these away. You can read David Willettts book on the subject. The current proposals are the first salvoes in rolling back middle class "benefits" and "confiscating" where possible their assets. Wait for the next announcements in the comming months. Of course the Tories being the Tories don't think the really rich should contribute to all of this as they need incentives to keep on creating the wealth whereas the rest of us can XXXXXXXXXXXXXXX.

  • Comment number 40.

    One of the advantages of a public pension is that it allows govt to give people the equivalent of a large sum of money to "do the dirty".

    ie. Civil Servant is promoted into a post with a specific role in mind.
    If the role is performed satisfactorily,second promotion follows, usually a couple of years prior to retirement.

    The effect of the above promotions have a very significant effect on persons pension worth well into six figures. This can lead to effective corruption.

  • Comment number 41.

    "The pay was terrible, less than I previously earned in the army, & I had to work my rest days to earn a living wage. This made the promise of a decent pension important."

    In the private sector you get the promise of training, 'discretionary bonuses' and 'advancement' along with a flashy job title.

    They all fall under the category of 'jam tomorrow' - easy to say and easy to welch on. Happens all the time in the private sector.

    Nothing beats cash now, and a pension pot with your name on it. Relying on somebody else to provide a pension is a mugs game.

  • Comment number 42.

    I would like to point out a light error in the report, it states "Many of the key facts and arguments in the study will be familiar to readers of my and Robert Peston's recent posts on the subject. In essence, the report says that the official statistics are not capturing the true cost of the promises being made to public sector workers in unfunded pension schemes (which means most of them - the big exception being workers in local government, which have funded pension schemes.)". Those employed by the NHS, the water authorities (at least in Scotland) are in funded pension schemes, I have been in mine for 35 years. I would also point out that as a profesional in the water industry for all this time, I could have earned a lot more in private industry for the vast majority of those 35 years than I did in Local Authority/Water Authority. I did without 2 holidays abroad per year, a company car, free BUPA etc in order that I could have a decent pension. It is disgraceful that I am now going to be penalised for having the foresight to plan my retirement rather than living for the moment. If those in the private sector can't be bothered to make provisions and spend all they get, that is their problem. How dare they try to take my pension away from me.

  • Comment number 43.

    "The private sector then got us into the current financial mess."

    Last time I looked government and the banking regulators worked in the public sector.

  • Comment number 44.

    Is it that public sector pensions are too good or that private sector pensions are just not up to the job, the providers use up too much of the money on fees and commission, a relative of mine has paid a karge amount into his pension fund from his business and is horrified by his recent projections for his income I myself had a few saving policies come out over the last few years none have matched the amount paid in let alone the promises of exceeding normal interest rates even allowing for the recent downturns, what happened to the profits from the boom years? once again the financial services are just milking the real economy.

  • Comment number 45.

    The public sector pension scheme I'm in is fully funded. It increased by 0% last year because the government says we have negative inflation.

    My part of it is made up of my contributions, deducted from my pay, and my employers contributions which are deferred pay. Will these contributions be refunded to me if my pension is to be stolen from me by the government.

  • Comment number 46.

    Since I earn half the money that I could in the private sector, I consider that I have already been contributing at least 50% to my pension scheme since I joined it. Increase my salary by 40% or so and I will happily pay the contribution in a more "transparent" way. Pension security is the only reason why I chose to work in the public sector in the first place.
    I know several people now in receipt of final salary pensions. NONE of them worked in the public sector. Their companies have no doubt now closed those schemes. The reason for this is so that they don't have to contribute as much to their employees' futures, in other words corporate greed, pure and simple. The crime in this country is NOT that public sector workers still have decent pension rights, it's that almost everyone else now doesn't. It is disgraceful that companies were allowed (even encouraged) to get away with this under a Labour government.

  • Comment number 47.

    I was a civil servant for 44 years with DWP and its predecessors. Salaries were never as much as the national average and any pay awards were actuarialy reduced to take into account the pension "contribution."

    Even as a middle manager at HEO level my salary was only on a par with the national average.

    So for 44 years I managed on an average or less than average salary but secure in the knowledge that I would have a reasonable pension based on an 80th of my final salary for each year worked. DWP has since moved to average salary terms for pensions calculations.

    When criticising civil service pensions the pundits should take account of the many years of low wages to earn this pension often in jobs that the private sector would not endure.

    The moderate pension plus state pension mean that I do not claim income support whereas a private sector employee would have to claim income support if they had no private pension and had to rely on the state pension.

    We should be aware of the full facts and take these aother issues into account.

  • Comment number 48.

    Post 25 sums up my own experiences exactly.

  • Comment number 49.

    The general view within the private sector has been that final salary schemes are completely unworkable in there current format. Hence virtually all being closed now.

    I don't see how this can be any less the case for teh public sector? The only reason they haven't been addressed in the last decade is that times for the most part have been good and politically it was therefore not possible. It will no doubt be unpopular with Unions and lead to strikes but forcing through a change to the current situation should be among the top priorities of the current administration along with cutting waste within the public sector that has been allowed to build (as it did in the private sector) in good times. I doubt few outside the public sector workforce will have any sympathy for strikers as its a reality the rest of us have had to accept.

    The state should protect the weakest in our economy from poverty as an aim. Those employed in full time, stable and reasonably paid jobs have a responsibility to look after themselves and budget for the future.

  • Comment number 50.

    The problem going forward is that the pension issue cannot be divorced from the salary issue. Many workers in ordinary jobs in the public sector get paid significantly less than the equivalent in the private sector and they accept this because the pension and other benefits are better.

    If you equalise those benefits downwards, those same people have no incentive to remain within the public sector, which leaves the public sector to be run mostly by those who cannot get a job in the private sector.

    The other issue, that the media are singly failing to report, is that the Labour government had finally grasped the nettle and introduced legislation that would force private sector employers to provide pensions for their employees, but the new government has already pushed back some of those requirements and the noises emanating from the chancellor would indicate to me that they intend to do away with most of that altogether.

    When in power in the 1980s, the Conservative Government allowed employees to opt out of their employers' pension schemes and many did so ... now the Conservative led coalition looks set to allow employers to continue to opt out of providing pensions for their employees at all.

    The underlying problem is not the cost of public sector pensions (which actually have been putting money back into the treasury over the last few years), but the fact that our entire pensions system is screwed up (at best) and underpinned by the massive cost to taxpayers of providing state benefits to people who have no, or little, pension provision paid for by themselves or their employers.

  • Comment number 51.

    xley wrote:
    Most annoyingly though, last night you raised the specific issue of Police and Firemen (it's been Firefighters for years by the way). Yes, they can retire earlier than most, but why did you conveniently forget to mention that they pay a huge 11% of their salary into their pension, not the 'average' 6%.
    ---------------------------------------------------------------------------

    Get into the real world! 11% contribution isn't 'huge' this is what a lot of private sector employees are expected to pay to be able to retire at 65 years.

    As has been stated in the report to obtain the equivalent pension that police and firefighters obtain would cost around 70% of salary!

  • Comment number 52.

    I'm completely mystified by the hysteria over Public Sector pensions. As has already pointed out Public Sector wages have generally been lower than the private sector.

    A pension is merely income that is deferred for future payments. Various governments willingly signed up to this system and are now looking to change things retrospectively because they haven't made sufficient provision for the pensions they agreed to. Obviously things change and need to be kept under review but the fault is the government's for not doing so; not people who have made lifetime financial decisions based on the the information they trusted.

    Compare and contrast this with the resettlement grants MP's received etc. Former Ryedale MP John Greenway was entitled to £64,766 in a one-off “resettlement grant”, which relates to annual salary, age and length of service. I quote what he said when he was criticised for the amount he received.

    Mr Greenway said he understood people had concerns, but said he had worked for 23 years under agreed terms and conditions, and these could not just be torn up.

  • Comment number 53.

    Making the pensions question a simple case of public versus private sector is both divisive and irrelevant. Comparing pension provision for the police and fire services to a civilian pension of any kind is unfair and emotive - of course they retire earlier with a comfortable pension. Would we really have it any other way?

    The problem is the huge and rising cost of all pensions. Pensions have been getting steadily more expensive to the provider for about 100 years, with little sign of slowing down. A pensioner in the 1940s had already beaten his life expectancy, but today may reasonably expect to live another 2 decades. Thus, promises made 20 or 30 years ago or more have proven more expensive to keep than was believed at the time, and the money must come from somewhere.

    The private sector response, with their funded schemes that must be kept solvent, has been to make drastic cuts to the accrual of future benefits for its new and sometimes existing employees. Now, no sane person would suggest that the Government should fund its schemes, as this would increase costs and provide no benefit. However, the fact that these schemes are unfunded has meant that the public employers operating them have failed to grasp the spiralling future costs of maintaining them in their current form - costs that must somehow be met from future taxation.

    There is no public-private divide here, from now on, we're all in this together.

  • Comment number 54.

    So much history quoted. So what.

    My future blah blah blah. Sorry dude everybodyelses future has been affected decade on decade and no man is an island. At the end of the day the public sector is funded by people not in the public sector. Guess it was a mistake to expand the public sector, whoops wonder who did that.

    Percentage of regional GDP dependent on public spending - NI 70%, Wales 70%, NE 68%, Midlands 55%. Sounds sutainable not. Brown bred n buttered (rita where are you).

    My recommendation to anybody for the last 10 years has been get a well paid public sector job in a role which has a long term need, simply because of the pension.

    Next step ringfence pension liability and fund seperately, privatise the lot on a 5 year taper of transitional subsidy. If that happens then the current complaints will seem like nothing dude. Welcome to everybodyelses world. lol.

    But hey if you hadnt bought all that imported tat and rubbish that falls appart the next day and causes landfill rubbish problems we might still have industry to support things ; )

  • Comment number 55.

    I am absolutely outraged by this discussion and the misleading impression being created by Flanders and the BBC. This figure of 40 percent is utter nonsense and arises from a single snap shot in time when the bank base rate is at the lowest level since the creation of the Bank of England in 1690. It is all very well flagging up explanations and caveats in a blog which hardly anyone reads but the BBC has created the impression in the minds of millions of viewers and listeners that public sector pensions are worth an additional 40 percent of salary.

    Throughout my career as a public servant,independent levels exercises were conducted by outside organisations which looked at the pay and conditions within the civil service and compared these to equivalent comparators in the private sector. Figures of 13 or 14 percent were the norm over the 30 or so years I can remember. I certainly don't recognise this figure of 40 percent which only applies while the base rate is at such an historical low.

    When I joined the Civil Service in 1982 there were approximately 100 graduate entrants recruited to train as Tax Inspectors each year. By the end of my training (5 years with 6 full days of exams) over half of the intake had left the service to join accountancy firms. They usually doubled their salary and received benefits such as a car, free health care and performance bonuses. Those of us who stayed did so out of a commitment to public service and a knowledge that one day we would receive a reasonable abd secure pension.

    One other thing. There are many restrictions which apply to working in the Civil Service such as doing part-time work for any other organisation, political activities, and restrictions on what you can do for a period of years once you have left the Service. This all needs to be taken into account if a fair context is to be presented, which at the moment it is not.

    Perjorative statements about 'gold plated' pensions in the public sector are whipping up hysteria that undermines and denigrates the value and worth of all those people who have dedicated their lives to public service. If we have a 'gold plated' pension when we retire it is because we gave up a 'diamond studded' salary over our entire working life.

  • Comment number 56.

    What did the private sector do when trying to engineer ever better financial results during takeovers?

    They declared pension holidays and stopped contributing to final salary schemes in order to milk the declared pension "surpluses". That is why the country is in trouble now over the adequacy of pension provision-not because public sector pensions are over generous.

    The suggested cap on public sector schemes of £50k pensionable salary is ludicrous.That gives a typical maximum pension of £25k per annum- just around median average earnings provided that you've worked the maximum 40 years service. Very few will have worked that term by he time they retire.

  • Comment number 57.

    xley's post highlights graphically the two looming problems with public sector pensions:

    1. Many of those entitled to them have no idea of the costs involved and think that they have paid for their pensions in full.

    2. Many public sector employees believe that they are underpaid with respect to their private sector peers and that they deserve their pensions as compensation for that.

    In answer to the first point, do the maths: you have worked for 27 years, contributing 11% of your salary. Multiply that up and it comes to 3 years gross salary that you've paid in (disregarding the fact that for most of the time you've been paid a lot less). If you work in the fire service, you are entitled to retire in your early fifties (or even before). You might live for another 40 years. It is quite obvious that the contributions paid in don't even come close to covering a retirement of that duration or anything like it.

    In answer to the second point, it is indisputable that salary costs in the public sector are now higher than the private sector, sometimes very much so (disregard the TUC's ridiculous apples-and-oranges comparison this morning that lamely attempted to assert the opposite: they compared average salaries of public sector workers, many of whom are part time, with average full time salaries in the economy as a whole; the correct comparison is of course the hourly rate)

    The reality is that the major portion of public sector pension costs will be borne by non-public-sector workers, many of whom have no option but to work until they die to do so.


    9. At 09:47am on 07 Jul 2010, xley wrote:

    Why does the BBC seem intent on only providing half the story, which is the half that includes all the supposed 'bad' things regarding public sector pensions?
    In your recent blog about this subject you stated that the NHS pension pot carried a surplus of £2.1 billion. Why wasn't/isn't this ever mentioned on your tv broadcasts. Most annoyingly though, last night you raised the specific issue of Police and Firemen (it's been Firefighters for years by the way). Yes, they can retire earlier than most, but why did you conveniently forget to mention that they pay a huge 11% of their salary into their pension, not the 'average' 6%. Yes, it's still a good pension due to employer contributions, but please state all the facts, not just those that appear to be the most scandalous. I am a fire officer in charge of a District of nearly 450 people, 10 fire stations and a budget of £25 million. It would be interesting to see what my salary would be for a similar responsibility in the private sector. You can bet it would be over twice as much as I earn now!! And I've paid 11% of that salary into a pension for over 27 years. I wonder what the BBC employee pension contributions are......???

  • Comment number 58.

  • Comment number 59.

    Pensions in any form whether they be Public, Private, Final Salary or any variation thereof are a complete waste of time.
    It was and still is the biggest con-job ever to be imposed on working people.
    I have never been fortunate enough to have had a job (for long enough) to accrue a decent pension, redundancy, short term contracts etc have been peppered throughout my work life.
    I do have one small pension that is valued at £10,000 which will pay me £600 a year, yes a pathetic amount and to be blunt a pile of rubbish, I would rather have the money, and spend it on something worthwhile.
    Pension pots in the Public sector have been plundered and gerrymandered by Councils, Governments and by so called independent management consultants. Private sector pensions have been abused by companies when they needed cash, or used as collateral on Company Finance agreements.
    Then the poor employee retires to find half the money HE PAID in has gone, vanished, stolen and ofc it is all quite legal.

    My advice today is DO NOT buy in to any Pension Scheme they are one big con you never get out what you put in and when you do get paid the pittance you are taxed on it, and because you have a paltry private pension, you loose other benefits.

    Do not waste your money, if you do have a pension or are expecting to draw one soon, take out as much cash money as possible and either spend it or keep it under the bed, no use putting it in the bank either, the robbing bankers will find a way to steal it!

  • Comment number 60.

    shaftace wrote:

    I am a retired police officer. I joined the force in the 70's accepting the terms of the pay & conditions. The pay was terrible, less than I previously earned in the army, & I had to work my rest days to earn a living wage. This made the promise of a decent pension important.
    --------------------------------------------------------------------------

    The poor pay may have been the situation in the 70s however is it the situation now?

    Looking at the current police pay scales with effect from 1 Sept 2010 a brand new police constable will earn a basic of £23k plus overtime - this is higher than the average salary! I appreciate police constables sometimes have a difficult and dangerous job however for a raw recruit with potentially very few qualifications to earn more than the average salary seems generous enough to me.

    In addition the average graduate starting salary is around £24k with no overtime. To achieve this lower than a raw police recruit salary a graduate has to do at least 5 years (2 years 'A' Levels plus 3 year degree) more education and have significant personal debts!

    On top of this above average salary a police constable will also accrue a very generous pension meaning they can retire on a decent pension in their 50s, something someone on an average salary can only dream of at 65 years old

  • Comment number 61.

    The Chancellor, Gideon Osbourne, has always been ideologically opposed to the public sector. Why is anyone surprised that he's set about destroying as much of it as he can and privatizing anything that's left?


  • Comment number 62.

    My (Public Sector) employer has recently announced it is planning to withdraw from the LGPS for new employees, and to look instead at alternatives (existing members still continue in the scheme). With contributions set to hit around 35% of salaries, the decision was to withdraw or to look to make staff redundant.

    One alternative was to look at a 50/50 pension scheme where the employer matches the employee's contribution. For me this could well be a viable alternative as long as the % contribution was set by the employee. Personally, my current financial state means I couldn't afford the 6.5% take from my salary, so I froze my contributions. If I was able to pay say 3% of my salary knowing this equal amount was being paid in, I'd do this with a view to increasing my contribution as my finances improved.

    To simply say that a 50/50 contribution would mean a massive hike in the % of salary taken from the employee would put me at an immediate disadvantage and mean I couldn't make my contribution, therefore ruling me (and many others) out. I understand this is partly the aim, but for me to make a small contribution would save the country a few quid in my retirement as I may not need to claim the state pension.



  • Comment number 63.

    I wonder what pensions senior banking staff receive. Particularly those who brought us into this mess. PS I am with Pandora we need another system as this one is broken. Will, eventually, we all work and then just receive pocket money just in case we enjoy ourselves. Surely there are other areas they can destroy our lives. Tell how can we not elect a goverment with hates ordinary people so much.

    PS BBC is giving very unfair and uninformative coverage on this. Could this be because they are trying to crush their own workforce.

  • Comment number 64.

    While some public sector employees have nevr considered how their pensions were funded, it is the case that many are well aware their pension is principally paid directly by taxpayers.
    This became an issue about 3 years ago when a local government official boasted that his pension represented a contribution three or four times greater than was actually paid by the member. The issue was referred to HMT,Unite and the TUC none of whom reponded although the BBC did take up the issue.
    My own County Council manages its members pesion fund through a number of fund managing companies. The return they obtain is quite low, around 3% which is about a quarter of the gross return obtained by the fund managers.
    It really is a complex issue and I rather suspect fund members and taxpayers are losers to the benefit of the pension providing companies.

  • Comment number 65.

    Public sector pensions are a joke they should be self funding not rely upon contributions from people who actually work for their living not just ponce around in Government Buildings. If the civil service want gold plated pensions that's fine they should pay for them with at least 10% employee contributions from salary. Self-employed people get absolutly nothing and Gordon Brown effectively taxed private pensions while leaving his and other civil servants pensions unaffected. Civil servants should pay up or shut up.

  • Comment number 66.

    I dont think its fair to change current public pension contributors to a lesser scheme, people may have chosen a work pension over another scheme for the reason it would benefit them long term and to change it part way through may mean the decision they made is no longer the viable one leaving them worse off. On top of that, private sector workers pay is better and there are large bonuses and this type of business is more of a gamble where as public sector is lower and with no bonus but better t&c's ie pension but is seen as a safer option...its up to individuals which route they go down career wise but dont, yet again, punish those who play it safe because of it!!! i would happily contribute a bit more to keep the final salary scheme i bought into.

  • Comment number 67.

    Again the Commission stresses the issue of the Public Sector retirement age. No one has ever offered me an even half plausible reason why they retire five years earlier than the rest of us mortals. Please do not roll out the old chestnut about low pay because a recent Times survey showed that Public Sector workers are now, in fact, paid 7% more than their Private Sector counterparts. Add to this better working conditions, fewer working hours, more holidays and a good many other perks and suddenly the wrath of the Taxpayer becomes very understandable.
    The Commission also vigorously stresses the lack of transparency involved with these schemes. This makes their true extent and cost impossible to calculate, remember the CBI puts the true "black hole" of Public Sector Pensions at 1.5 trillion pounds!
    Come on folks, you've been rumbled! Reality is knocking at your door, as it's been knocking on the Public Sector's door for many years now. I'm afraid the party is rapidly drawing to a close.

  • Comment number 68.

    I can only talk as an individual with regards to public sector pensions.
    I have been in a Local Government Pension Scheme [LGPS] for 36 years paying my contributions direct from my salary. I choose to work in local government[education]because I wanted to contribute and help other otherwised disadvantaged children to have a good start in life. I could of chosen to work in the private sector - I didn't. The private sector salary of an equivalent post pays several thousand pounds more than I am currently earning now and as always has done, I do not receive a company car, or yearly a bonus, or option of shares, or an expenses account, or overtime for additional workload, or work in a modern office. My pension contributions of which I pay directly to my employer has recently been increased along with other public sector employee's and my final lump sum has been reduced. I am in my career for the long haul 47 yrs + . I wonder how many private sector employees would be willing to make the commitment of having 6.3% of their wages deducted from their monthly salary for at least 40yrs. Yes I will get a reasonable pension, I've earned it!.

  • Comment number 69.

    #23 "I cannot understand why successive governments have just stood back and allowed the private sector to destroy their employees pension schemes. The senior management of these companies which have closed or reduced their employees pensions schemes still retain their own final salary pension schemes."

    I'll help you shall I?
    The problem:
    Was/is that we are all living longer than pensions were set up to finance. As a result, with the obligation to fund losses on the schemes, Companies were threatened with insolvency simply because their pension scheme obligations had suddenly become too large.
    The result:
    Company managements effectively walked away from the pension obligations to preserve the companies and the livelihood of their employees, by closing the FS schemes.
    Why is this different from public sector pensions?
    Because, with certain exceptions, public pensions are funded by tax payers on a pay as you go basis so there is no question of killing the company to fund pensions (you just screw the taxpayer).
    Ros Altman, Frank Field etc. have long highlighted the problems. The problems are so big and the solution so politically unpalatable that this has been shelved as an issue for years. Blair sacked Frank Field for raising these home truths when he was a minister. We are only now facing this because the commitment is now so huge we can't avoid delaing with it.
    Does that help?

  • Comment number 70.

    The real question the Government should be asking is "how could we ensure that everyone will get a pension that provides them with a comfortable standard of living?". Only around 50% of employees are in a pension scheme at all (mostly those on higher incomes). The rest have to make do with the paltry UK state pension, many of them officially living below the poverty line.

    Even if the money could be found to provide everyone with a funded occupational pension, this wouldn't be a viable option. It would mean quadrupling the amount of money sitting in the City in pension funds, which would have nowhere to go except to create asset bubbles far greater than the nonsense we have already endured. Indeed I would say there is already too much money in City pension funds compared to what the private sector actually needs for investment in factories/offices/training etc.

    The conclusion has to be that in an ideal world the vast majority of pensions both public and private ought to be unfunded. There's no fundamental requirement that pensions should be funded - in terms of actual goods and services, either form of pension ultimately means that those in work must forgo a proportion of what they produce and hand it over to the retired. The funded versus unfunded bit is just the legal mechanism by which this is achieved.

    So what general direction should we be heading? Having public sector pensions unfunded and private sector pensions funded is obviously unfair (except in those areas - which do still exist - where this is compensated for by public sector salaries being lower than the equivalent private sector salaries).

    The only long-term answers seem to be either a big increase in the State Pension (bringing it more in line with our Eurpoean neighbours), or perhaps re-introducing SERPS such that a proportion of Private sector pension is loaned to the Government to fund the building of roads/hospitals, education etc) rather than just handing it over to the City.

  • Comment number 71.

    In 1988, when Margaret Thatcher changed the law on pensions, my company decided to close down the Final Salary pension Scheme and told us all to go out a buy ourselves a Personal Private Pension. They give us all fair, but not generous, transfer values and then cashed in the surplus for the benefit of the partners. The staff had absolutely no say in the matter. We were offered help and advice in finding a suitable pension scheme which meant that I settled for a (then) gold plated pension with Equitable Life .
    After several ups and downs, a small legacy, and with the help of an excellent financial advisor, I am now retired on an income that I can live on. I am content, and watching the current situation with interest.


  • Comment number 72.

    I for one would be prepared to strike if my public sector pension is changed. It's one of the biggest reasons I chose to work for the NHS. Heck, we spend our lives dedicated to the help of others, we are entitled to get something back for all those hours of care, that private sector employees get from us. Be warned, tamper with our pensions and the beast will awaken, and this governmnet will be very sorry indeed.

  • Comment number 73.

    I think that we are all looking down a black hole and should take a pension holiday. Then when we are refreshed we could look at it from a different perspective.

  • Comment number 74.

    Post 50:

    "The other issue, that the media are singly failing to report, is that the Labour government had finally grasped the nettle and introduced legislation that would force private sector employers to provide pensions for their employees..."

    Which is completely an about-face method of approaching this issue, if you ask me. The reason so many Public, or ex-Public, companies (or such-like) are struggling is because of the pension burden. To place this burden onto Private companies would simply force a significant number of companies, already struggling due to the catastrophic state the country finds itself in, out of business.

    Pension provision can, and perhaps should, be best left up to the individual to fund.

  • Comment number 75.

    DOUGANDDINSDALE #24

    I fully agree. It all seems to be a way of thwarting speculative attacks on the GBP and gilts. Taken in its entirety, the OBR, GDP info delays, austerity measures and so on all represent a way of keeping market speculators at bay. It's pandering to the needs of markets really.

    I think that unless the coalition represents a group of totally blinded free-market fundamentalist ideologues, it can only be a temporary way of buying time before completely different solutions are brought into play, or emerge unexpectedly.

    My personal opinion is that when the time comes, private banks will suddenly find themselves raped and pillaged by the state and smashed back into very conservative, traditional entities with little influence. Through regulation/control of private banks, the economy can be stimulated through home, consumer and sme business loan interest rate reductions and debt write-downs (etc).

  • Comment number 76.

    Stephanie, it is disgusting to see you, the BBC's own economics editor post misguided, right-wing nonsense about public sector pensions. Here are some home truths, /actual truths/ about public pensions:
    1)Pensions in the civil service are indeed decent - the gap between the private sector and public sector is the fault of private sector employers. Executives at the high level secure themselves extortionate pensions with low retirement ages, leaving lower-down staff with less generous schemes, and in some cases, due to market instability, job losses.
    2) It doesn't matter whether a pension is a public one or a private one, we all pay for them, whether that's taxes for the public sector, or buying goods and services that pay for the private sector.
    3) The average civil service pension is £4,200 a year (excl. high earners). However, 100,000 people receive a pension of £2,000 or less yearly, 40,000 less than £1,000, and 60,000 between £1,000 and £2,000.

    You also ignore the fact that 2.5 times as much public sector money is spent subsidizing private pensions through tax relief on the higher earners - 60% of this goes to earners on the highest rate. And the coup de grace; 5.54 million (or 6.03 million according to the ONS) are employed in the public sector in this country - and every single one of us pays taxes (That's almost a sixth of the workforce), so the idea that public sector pensions are in no way levied upon the civil servants is 100% lies.

  • Comment number 77.

    Can someone who really knows what they're talking about help me square this circle:

    1. There are 2.5m people unemployed (more if you believe Labour fiddled the figures) plus thousands of feckless people on benefits whom the government wants in work and further thousands of public sector workers who will soon be unemployed. There are currently 500,000 vacancies.
    2. Pension provision in the private sector is poor, and public sector workers are going to see their benefits decline significantly at best.
    3. The state pension age will be progressively rolled back and it's value will diminish one way or another.
    4. We are all living longer and the number of people requiring care in their old age will rise progressively.
    5. The value of private pensions, endowments and other investments have been significantly reduced over the past 20 years and are not set to improve in the forseable future if at all.
    7. The birth rate is stable but the proportion of older people is growing, and everybody is expected to work beyond 65 in an employment market where ageism is rife.
    6. The cost of housing remains high, and demand is likely to outstrip supply for years to come.
    7. Gas, electricity and oil prices can only continue to rise as because of scarcity and environmental factors.
    8. Benefits for the unemployed and sick will never be likely to meet the actual cost of living.
    9. A prolonged recession cannot be ruled out.
    10. Health care is unlikely to remain completely free at the point of use, or provide the level of cover currently provided.

    How are people going to live? If their salvation is to be economic growth how long will they have to wait for life to improve? Where will they live? If energy costs continue to rise but wages/benefits don't how do we keep warm? How long will it take for the private sector to replace the public sector jobs that are to be lost? If pensions are to be withdrawn and savings/investment not yield the necessary sums how are we going to fund our retirement/care when we simply become unable to work? Where are the jobs for young people going to come from if old people aren't moving aside for them? How are old people going to live if they can't hold onto or get a job?

    Is the future really as frightening as I think it is?

  • Comment number 78.

    Another bandwagon for the media to jump on. I am a local goverment officer. I contribute to my pension and have a managed funded scheme. I believe the civil service scheme should be an investment funded scheme like the local government one , employees in the civil service should contribute to the scheme and the current unfunded mess should be radically reformed.

    Local Government schemes invest employee and employer contributions using a mixed portfolio of investments across market sectors, everything from the international property market to gold. Profits from these investments are reinvested in the fund. Generally, this arrangement ensures that there is enough in the pension pot to ensure little or no deficit. My contributions have recently been increased and any lump sum I would receive significantly decreased to account for the increase in the number of current and potential retirees.

    In the private sector, during the good times, many firms were allowed to stop employer contributions as significant 'surplus' existed in the fund. Pension money was used to prop up businesses (Mirror Group for example) and narrow risky investments were implemented to boost funds. Then along came Gordon Brown with his pensions levy.

    The public sector and Local Government in particular have nothing to learn from the private sector with regard to pensions. Companies allowed their pension schemes to go into deficit by bad management and investments, this rarely happened in the public sector due to strict investment rules.

    Also, it must be remembered that many low paid public sector jobs such as cleaners and refuse collectors were contracted out to the private sector. Figures on median salary between the public and private sector are often misleading as the relative qualification of many public sector workers is higher than that of the private sector. Most public sector workers now hold educational qualifications to degree or post graduate level, e.g. teachers, engineers, architects, lawyers, accountants, etc. For example my authority contracts out road repairs, cleansing and other manual labour tasks. If many of these people were employed in the private sector, their salary levels would be significantly higher. Perks such as company cars, share options, bonuses, etc would also no doubt follow. Perks not available to local authority employees.

  • Comment number 79.

    The penison gap in the public-sector will of course expand the entitlements of the MAwons running sillyconvalley

  • Comment number 80.

    39 Peter

    " Of course the Tories being the Tories don't think the really rich should contribute to all of this as they need incentives to keep on creating the wealth whereas the rest of us can XXXXXXXXXXXXXXX."

    Peter...you're right that the Tories are trying to iron out the monstrous act of intergenerational theft that has been going on. Good luck to them! To say this is somehow wrong is to be just as selfish as these supposedly "super-rich" folk that the Tories always somehow protect.

    This sloganising about the super-rich is just about the biggest red-herring in existence but it acts as a handy lightening rod for people who cannot count or even think slightly ahead.

    So who are they? At what annual income do go from being reasonably well-off to "rich"? How do you propose to punish these people if you can actually find them? Remember, if you were to confiscate Roman Abramovich's entire fortune it would keep the NHS afloat for about a week...then what? How many Roman Abramovichs are there out there anyway? A few hundred worldwide? How long do you reckon their money would keep the whole economic Shangri-La of modern Britain afloat?

    The basic truth is that we have been living beyond our collective means for years. Our expectation of living standards, longevity, health outcomes etc. have exceeded our ability to pay the bill because...somewhere, somebody has to pay that bill and, God knows...maybe it is actually right that the people who have enjoyed the benefits i.e. you, me and Joe Soap pick up the tab! It's going to hurt us because it is the problem of our making.

    But what about the Bankers? It's all their fault right? A recent Radio 4 programme calculated the entire national debt, annual deficit, PFI obligations and unfunded public sector pension at about £120,000 per household! Eye-watering and scary enough, but how much of that is taken up by the 2008 bank bailout? About £200! The rest has been spent on fighting wars, developing a modern social welfare state, on everyone living 10 years longer than they used to, building infrastructure and paying millions of people to help provide services that weren't available to our grandparents. All of which is good, moral and desirable but doesn't get around the fact that we have been going steadily into debt for years to get here!

    By comparison with British people 50 years ago we lead a highly pampered life. The worry is that our children and grandchildren will look back in 50 years time and also think that we lead highly pampered lives. By the time this process has finished, we will probably have to accept standards of living much lower than they are now in terms of disposable incomes and opportunities. A kind of 1970s with iPods!

  • Comment number 81.

    Such a lot of heat and more than just a little of the politics of envy from private sector. To make matters clear I have a foot in both pension camps.

    I really cannot see why the private sector pension schemes are being used as a 'gold standard' by which to judge the public service pensions. It is quite clear private sector workers have been truly shafted by some of their employers (those who didn't offer schemes, those who under-funded their schemes, those who took long pension holidays, those who considered the pension fund as part of their money, etc etc). All private sector pensions have managed to do is create a giant sector of The City which (as usual) has played their usual game of Heads we win/Tails you lose.

    When I first joined a pension scheme it was clearly stated that the scheme was a form of trust between the employer and employee - in fact it was administered by a seperate board of trustees. From what I now see that trust has been well and truly broken leaving employees in shark infested waters without a life jacket.

    Now I don't know how to fix this dilema but perhaps a start point would be to have a compulsory National Occupational Scheme adminstered by the State (but out of the reaches of the politicians) for all workers irrespective of sector. If people wanted to enhance the pension then they would be free to make any additional investments that they wished on their own account (with the consequent risk).

  • Comment number 82.

    38. At 10:52am on 07 Jul 2010, steve_cov wrote:

    Why is there no mention in this report of the fact that NHS contributions currently more than meet NHS pensions?

    This fact, which has been mentioned several times before, is down to the fact that the NHS is now by far the largest employer in the UK and in fact is only second to the Chinese red army in the world. There is a dispute as to the India railway numbers. Between 1997 and 2004 the numbers employed by the NHS went up from just over 1 million to over 1.5 million currently. Hence the current discrepancy between those getting an NHS pension and the contributions. This however is forecast to swing drastically around in the years to come. One estimate is that the NHS pension deficit will be more than the rest of the public sector combined.

    As to the point about the private pension not being up to the job. I would agree however prior to the raids by the prior government and the changes in tax relief this was not the case. Although they could never keep up with those of the public sector even then.

  • Comment number 83.

    Public sector unions seem to be in exactly the same Alice in Wonderland world that MPs were over their expenses. They have been riding the gravy train for so long with gold-plated pensions that they cannot understand what the fuss is about. As was said of the MPs: "They just don't get it." Private sector pension schemes have been downgraded for years because they were unaffordable. Private pensions have been plundered by Chancellor Brown and his successors, cutting their value even before the recession hit market values. Yet still the public sector expects the taxpayers to stump up from their own reduced pensions to maintain civil servants' inflation proofed parachutes. We've been living beyond our means, the party's over and everyone is going to have to share the pain - including the bloated public sector

  • Comment number 84.



    Steve wrote (post 51):

    "xley wrote:
    Most annoyingly though, last night you raised the specific issue of Police and Firemen (it's been Firefighters for years by the way). Yes, they can retire earlier than most, but why did you conveniently forget to mention that they pay a huge 11% of their salary into their pension, not the 'average' 6%.
    ---------------------------------------------------------------------------

    Get into the real world! 11% contribution isn't 'huge' this is what a lot of private sector employees are expected to pay to be able to retire at 65 years.

    As has been stated in the report to obtain the equivalent pension that police and firefighters obtain would cost around 70% of salary!"


    ----xxxx-----xxxxx-------xxxxx

    The misunderstanding and denial regarding police/firefighters pensions is truly breathtaking. I can't wait to see how the government handles this. The police kept their pay rise but they can't keep them sweet for ever.

  • Comment number 85.

    Poster 45:

    No one is going to steal your pension accrued to date. However, from now on in, future accruals could be at a lower rate.

    And of the contributions you make - a small figure relative to your salary - have you calculated what these are worth as a pension at retirement? Not a bad return is it? How is this difference made up without any investment risk take by yourself?

  • Comment number 86.


    Many thanks to those who have provided comments to Sleepy Dormouse.
    It was written as a story to try to make a couple of points – some of you sadly have missed them.
    The economic text books I have looked at in the local library hardly mention that the pound became non-convertible in 1971. They then ignore an event that TOTALLY changes one fundamental aspect of the way in which economic ideas should be thought about; talk about living in the past. Problem is the economic ideas that are being put into practice now are based on the UK being on the Gold Standard or having some form of convertibility to adhere to. As the Pound is not convertible, we have freedoms that the whole of the Eurozone do not. Their sovereign governments do not control their currency so they are in a mess. Trying to equate the UK to Greece just shows how little is understood out in the general public of the significance of the £, $ and most other currencies being fiat currencies. The education system has a lot to answer for at all levels.

    It is correct that there are dangers if the government deficits are too large. But the government should not be borrowing when it doesn't need to. I agree that the pension funds are major buyers of bonds so the public sector is providing the pension companies with risk free investments for all in the private sector. The public sector bail out the banks when they collapse. They then walk away with billions in bonus payments. Don't you realise the hypocrisy in all this? Think about it. The pension funds use bonds as a free ride, they don't have to think. If the government deficits are used to fund the projects needed by the population, the private sector will expand and give other places the pension funds can invest in [and probably make a higher return]. The danger point is if these deficits get the demand in the economy above that which the economy can supply – then inflation can take off.

    We are in the 21st century, lets stop running our economy as if it is still in the 20th century.
    If you want to learn, read about Modern Monetary Theory or Chartalism. Prof Bill Mitchell is a leader in the field. He's at Newcastle University in Australia. Google him to get to his blog. But be warned, if you have preconceived ideas and a closed mind, don't bother! Its hard work going through all that's published. (You could also look at the work of Warren Mosler.)

    You can just have the attitudes of the Middle Ages Inquisition, or the Flat Earth Society . Personally, I prefer to be open minded and wonder if there is a better alternative that has been thought through, makes sense and allows the Government to do its job of providing a decent life foe ALL the population – not just the favoured few. I am asking questions to find a new way forward, my I politely suggest that if your only response is based on Gold Standard economic theories, please start reading – fast. You may be converted................

  • Comment number 87.

    ... the real issue here is the antiquated laws (introduceed by a previous tory regime) which state that no private sector pension scheme can be 'overfunded'. This has given rise to masses of private sector cash flowing into share dividends and NOT pension schemes - BT pension fund is a perfect example of this. This legislation was introduced to ensure that private companies looked good and actually more profitable on the stock market than they really were. If this dividend cash had gone to pension provision then these private pension funds would have easily withstood the windfall tax on private sector pensions.

  • Comment number 88.

    re jj36 comment "....Unless the government acts now, 10+ years down the line it's going to be one big gooey mess, and us private sector tax payers don't want to have to bail you lot out..."

    Isnt that what we are doing now for those selfish private sector workers who are largely responsible for the mess we are currently in?!?!

  • Comment number 89.

    First - the final salary pension no longer exist for new public sector workers. It was stopped some years ago.

    Second - we were always told we were paid less than private sector equivalent posts because we had "a better pension instead". So I have contributed thousands to my pension every year I was underpaid.

  • Comment number 90.

    2. At 09:21am on 07 Jul 2010, johnboy911 wrote:

    "Time to start canning some of these public sector workers unless they really are vital to our nation. Also time to equalise retirement age as well. "

    Yeah because when you're a slave the only thing that makes you feel better is dragging others down with you. What a shame the private sector have enjoyed 'above mean wages' in return for their poorer pension.

    What do you mean your wage is no higher than your public sector mate? - ah well, you see that's because the distribution of wages is much worse in the private sector so all these highly paid execs push up the average salary - therefore the majority of private sector workers are in fact worse off, but the attraction of higher than average wage still pulls them in like moths to a light bulb.

    Just because we (and I mean we) private sector workers were too stupid to see the con of our so-called free market pay structure - why do we think it's OK to start complaining now?

    Sorry - your right to strike were sold off in your dewy-eyed rush to join the private sector thinking you were on to a good deal (I know that's why I work in it) - the fact that you got ripped off and there's little you can do about it is your problem - what's the phrase? - Caveat Emptor is it?

    Free market - powered by slavery to give freedom to the few. You've got to admire the con you've all fallen for....

  • Comment number 91.

    Poster 9 Xley.

    Lets look at some general figures:

    If a private sector individual paid 11% of their £21,000 salary for 40 years, they might be lucky to get an inflation linked pension, plus something left for the spouse of about £3,500 per year.

    The public sector individual with same salary and contribution would receive circa £10,500 per year, inflation linked and some for the spouse.

    The difference between £3,500 and £10,500 per year is costing the UK significantly.

  • Comment number 92.

    In the early '60s Tony Crosland looked at the State Pension and determined that is would become unaffordable, his solution was to move to a fully funded system into which everyone would pay. If it had been done the switch to a fully funded system would have begun to pay out in the late 90s. It was even suggested that it would have replace private sector pension provision and having no shareholders or the requirement to pay dividends the benefits would have been better.
    Of course Thatcher would have privatised it in the '80s.

  • Comment number 93.

    Local government and teacher pensions are the most over-reached. Last time the Tories were last in power, they encouraged the give-aways of discretionary benefits to both groups to hasten the reduction in staff and the level of unemployment. It was a practice they knew the 'next government' would have to fund those extra awards from its future tax receipts. That would also eat up the funds needed for productive projects during the following government's term.
    The method chosen by officers (the potential beneficiaries) was to award 'added years' and 'no actuarial reduction' of pensions given early and years before they were due.
    Decision making Councillors and others had no idea just how expensive those discretionary awards would turn out to be. But the potential beneficiaries knew very well how much they were worth to themselves.
    Moreover, getting a discretionary early retirement could also involve an 'ill health' pension that was worth even more loot. It all amounted to a perverse incentive supporting both 'Age Discrimination' and 'obstructionism' amongst officers over 50 who hoped to be rewarded for those obstructions with an early retirement bonanza. All at the expense of future tax-payers or public services rather than current ones. Because Councillors and others are mostly short-termist, awarding early pension benefits via nebulous 'added years' etc., inevitably removed the restraint from providing that largess. It's a wonder anyone served up to normal retirement age - and of course only a few nutters did so.
    In parallel with the early retirement boom of the 80s & 90s was the boom in dubious (i.e., un-inspected) 'ill-health' retirements. The Audit Commission (usually staffed by early retirees from the public sector) found that in some local authorities, almost all retirements were on grounds of supposed 'ill-health' grounds. The AC warned that the widespread practice was in danger of becoming entitlement rather than an occasional discretionary exception. And that the runaway costs would become the huge burden on taxpayers that it has.
    Which is the main reason why public sector pensions now cost so much - outright and cynical exploitation of the scheme by insiders with an interest in perpetuating the precedent they expected to take advantage of.
    So we've got an whole clutch of economic concepts here: 'perverse incentives', 'asymmetric knowledge' and 'insiders' cartels'.
    In the County of West Yorkshire, I estimate the cost in the 1990s alone as over £3billions.
    Who said that legalised fraud doesn't pay?

  • Comment number 94.

    I have now worked for 30 years in and out the public and private sector. For most people in the public sector, in middle and senior positions, there used to be an understanding that they were always going to be paid significantly less than in the private sector, but with the knowledge that a reasonable pension at the end of it could be expected. My own experience was that, when I was in the public sector, friends in the private sector, doing similar work, were paid anything from 25 to 150% more than me, but they would need to put a lot of that into a pension plan of some sort. In the long-term it all balanced itself out.

    In the 80s and 90s the public sector was reformed, long overdue in almost all cases. But with those reforms came the ability of many in middle and senior positions to negotiate their salaries, where previously they were simply appointed on a given pay scale. The result for many was not only increased salaries but also the retention of the 'good' pension scheme. Many would argue that getting both is unreasonable.

    If you need (and want) good quality staff in either public or private services then you need to offer a reasonable reward. Reforming public sector pensions is clearly essential but a little more thought in the balance between pay and pension might be useful.

  • Comment number 95.

    Great idea reduce public sector pensions to the same low standards of private sector pensions presumably so that taxes can be kept low for the higher paid. That way, in the future even more pensioners will claim means tested benefits, bit short sighted isn't it.

  • Comment number 96.

    I do feel sorry for people who are approaching retirement and thought that they were going to get a good retirement but we just can't afford to pay your pensions.

    Maybe the unions should talk about overall remuneration as opposed to salaries when compared to the private sector? That would be the fair comparison.

  • Comment number 97.

    I have worked in life & pensions for many years and can offer some insight into the pensions deficit.

    (1) The removal of pension tax credits on dividends by Brown in the early years of Labour hit schemes hard and should really be reversed.

    (2) Comparing public final salary with the private equivalent is not really the key point since as you pointed out only 11% of private schemes are now final salary.

    The big problems in pensions are all to do with the non-final salary versions, known as "money purchase" or "defined contribution schemes" (also some "defined benefit" schemes where the benefits are not based on final salary)...

    In the heyday of pensions, ending around the 1980s, investment returns were around 7% from stocks and shares and 5% in less bull market times which allowed people to fund their pensions with what many would regard as a "sensible" slice of their income being put away. Those levels of return would just about allow your money to double in ten years. However, those returns are a thing of the past and that has required ever higher slices of remuneration to be invested to achieve a living income in retirement.

    The double-whammy is that returns from gilts have also decreased and that is where life offices tend to invest for annuity provision, for those who don't know, it is a two-stage process:

    1. Invest into a pension product
    2. "Retire" (although you don't have to stop working so the event is known as "crystallisation" or simply "taking your benefits") whereupon the accrued value of the fund is used to buy an annuity.

    Annuity investment tends to be on a safe-bet basis and hence gilts are the traditional haven.

    So such schemes are hit at both ends making it almost impossible to fund a pension privately these days.

    One reason investment returns are reduced is the amount of money being siphoned off by the stewards of the companies - the directors. The life office fund managers are often holders of large blocks of shares and yet they never vote down remuneration packages etc.

    However, it has to be said that there needs to be better ways to invest, or better things to invest in if private pensions are to once again become viable. Possibly this will involve better fund managers making more informed "risky" investments rather than sitting in blue chip companies with (supposedly) safe returns.

    The other big problem is the attitude of the tax authorities to pension provision. There has been an increasing trend in recent times for them to see pension contributions as tax avoidance and thereby discourage people from making any provision at all. This is a self-defeating attitude since the rules of pensions are such that the money invested will in some way be providing for the beneficiary throughout their life - which means that they will not be a burden on the state (or at least, they will be less of a burden) and that is all the state needs to know. It should be music to their ears if someone wants to contribute lots of money into a pension - less for them to do ("them" as in "us", the taxpayers).

    This desperately needs to be addressed, but at the moment few people are understanding the nature of the problem; to fund pensions they need a place to invest (along with a tax regime) that gives them around 7% returns and the freedom to do so unchallenged.
    At present many people have simply given up - they seek quotes and projections from pension providers and when they see the numbers they quite understandably realise that they cannot afford to put away what would be needed to provide for their retirement and either go into "heads in the sand" mode or make some other plan for later years.

  • Comment number 98.

    I have to admit this is a great way to soothe the pain of the recession.

    First you propose spending cuts of about 25% which will remove the only part of aggregate demand left - and try to offset it with a tiny 1% cut in corporation tax.

    Then you tell the civil service (on whom Government relies totally) that not only will their pensions be reduced / retirement age increased or demand more payment into the pension.

    Finally you propose to change the law (oh and that's the law the civil servants will be putting together for you) so they can't claim anymore than 1 years salary as a redundancy package.

    I mean if you want to create the conditions for a general strike then I would suggest this is pretty much the most effective way of making it happen. Unfortunately I don't think this is what the coalition is trying to do.

    Never mind the insanity of trying to replace a 25% cut in Government spending with a 1% cut in tax in a private sector with flat demand - you've effectively just signed the papers to shut the country down.

    Well done Osbourne - you have actually exceeded my expectations. The first time any politican has done so.

  • Comment number 99.

    Lets look at the real winners,not the police and firefighters !

    An MP who has served 26 years retiring today could expect to receive an annual inflation-proof payout of £40,000 from his pension.

    One of his constituents would have to build up a massive pension pot worth about £800,000 to get the same sort of pension. But this is highly unlikely - the average amount in a company pension pot on retirement is only £40,000, or £28,000 for a personal pension. For a worker with a £40,000 company pension pot, they could expect a pension of just £1,600 a year.

    State contributions for MPs are more than four times higher than the average paid out by companies for final-salary schemes.

    Read more: http://www.dailymail.co.uk/news/article-381563/Taxpayers-pay-millions-fund-MP-pensions.html

    A firefigter works shiftwork with no shiftwork allowance,works Saturday and Sunday with no weekend allowance , is multitasked by the government to perform tasks would make an MP hurl ,from wading threw sewage with the now annual flooding ,baging heads, limbs and intestines after bombing and accidents, to decontamination after a nuclear incident.
    After 30 years of this a small final salary pension compared to an MP and here's the catch....most firefighters only manage to stay alive a maximum of ten years after retiring due to stress on thier heart over 30 years of shiftwork. On the otherhand an MP waddles of with a huge pension, living into thier 90's after earning a fortune over the years for sitting on thier backsides an argueing the country into the state it is now in.

  • Comment number 100.

    What does not seem to be mentioned is that the Police pension scheme was re-assessed in 2006. I am a police officer on the new pension scheme and will get far less benefits than some of my more senior (in length of service) colleagues upon completion of my police service. Officers who joined before 1st Apr 2006 pay 11% of their wages into the pension scheme, whilst officers since 1st Apr 2006 pay in 9.5%. Even by paying in less, the calculations for the new pension scheme are far less beneficial and I would have to work 35 years for a full pension as apposed to 30 years of service.

 

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