Are public sector pensions unaffordable?

  • 30 June 2011
  • From the section Home
  • comments
Queues at Border Control at Heathrow Airport

A revealing exchange between Today's Evan Davis and the Cabinet Office Minister Francis Maude set the scene for today's strike over public sector pensions.

Maude claimed that public sector pensions are unaffordable. The prime minister went further recently claiming that the "pension system is in danger of going broke". Yet Davis unsettled the minister when he quoted figures from the independent and government-commissioned Hutton Report showing that the cost of public sector pensions is actually projected to fall as a share of national income (from 1.9% of GDP this year to 1.4 % in 2060).

So, how then can the government claim they are unaffordable?

The key fact ministers deploy is that payments to public sector pensioners and their dependents rose by a third over the decade since 1999 - reaching £32bn by 2009. At a time when many other things are having to be cut their message is that pensions cannot be immune.

Hutton agrees to this extent. He did argue that the taxpayer was unfairly subsidising public sector workers pensions which are much more generous than those in the private sector (almost all public sector workers are on defined benefit schemes whereas only just over one in 10 private sector workers get a guaranteed company pension).

The government is trying to take £2.8bn out of the bill. The last Labour government had plans to take out £1bn and the party leadership is not supporting today's strikes.

So, the battle is on for public opinion. Will people blame the unions or the government for today's inconveniences? Will they agree with workers who say they're fighting for a decent retirement or ministers who say voters are being misled by unions set on confrontation. Above all, though, will taxpayers judge that public sector pensions are or are not affordable?

Update 1752 BST: It's taken them some time, but the Treasury have now decided they need to explain why they believe public sector pensions are unaffordable.

The figures I quoted earlier - and which Evan Davis used to skewer Francis Maude this morning - showed that the cost of those pensions is due to decline over the next few decades. That, say the bean counters at the Exchequer, is because they are based on assumption of further reform - precisely what is being negotiated now - and a change - which some are resisting - to the inflation uprating of pensions (from RPI to CPI).

They point to a quote from Lord Hutton on BBC1's Politics Show that "we shouldn't rely on that 50-year bet that overall these pensions are sustainable in their current form".