Are public sector pensions unaffordable?

 
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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".

 
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  • rate this
    0

    Comment number 343.

    The reality is there are only six million union members in a population of 60 million. The vast majority are int he public sector.

    Sympathy vote: nil... Own goal: three.

    This is a pantomime with all the usual union 'characters'. Long may they rant on the nation's television and radios to worsen their plight.

  • rate this
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    Comment number 342.

    330.Bass_Man

    Well played, sir. Well played.

  • rate this
    0

    Comment number 341.

    Nonsense to say the public sector doesn't create wealth. Of course it does. Useful service activities in the private sector create wealth - countless successful companies we could mention - and so do useful service activities (health, education, policing etc) in the public sector. This is obvious if we think about it. We shouldn't confuse making a profit with creating wealth - not the same thing.

  • rate this
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    Comment number 340.

    The Hutton forecast is based on the proposed reforms being implemented.

  • rate this
    0

    Comment number 339.

    323 - "Whatever I pay into my pension ... is what I will end up getting.

    Surely that's the same for the teachers etc"

    No. Most public sector pensions are unfunded and final salary. Public pensions are paid from all CURRENT worker's taxes, not your own PAST contributions.A payrise on your last working day and your pension is increased for life even though you've paid nothing towards that.

  • rate this
    0

    Comment number 338.

    "282.mnemosene

    What the public sector does not do is drain wealth through tax evasion, excessive bonuses or offshore dealing."

    Although it does drain wealth by putting out contracts to foreign bidders rather than local providers! While the cost of the contract itself might be cheaper it generally isn't when you take into account lost revenues. Plus there are bonuses in the public sector too

  • rate this
    0

    Comment number 337.

    VikingView 323

    If you work in the private sector you'd have to pay about 37% of your salary into your pension each year to enjoy the level of benefits enjoyed the public sector. That might help you understand why those in the public sector are being asked to pay more.

  • rate this
    +1

    Comment number 336.

    #326 jobs

    Tired and cliche-ridden, jobs. Greece has nothing in common with us, as you well know. It is being stuffed by single currency membership and the banking collapse. It clearly has a deficit issue, but right-wing ideologues are distorting the truth for their own anti-statist purposes.

    Sort your apostrophes out, by the way.

  • Comment number 335.

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

  • rate this
    0

    Comment number 334.

    "Public opinion will always end up against them (unions) so it is only a matter of time before they capitulate." MH302
    Didn't see the Yougov poll then? Only 40% thought teachers right to strike, 49% against. However, 47% oppose the government changes to PS pensions, 37% for. There may be a difference between what some would have us believe people think/support and what they actually think/support

  • rate this
    +1

    Comment number 333.

    #322

    If you honestly think that a teacher works only during lesson hours then you're the one who should be at school.

  • rate this
    0

    Comment number 332.

    242 Marnip

    You are quite correct to assert that the public sector is funded from taxation. However, you missed out the borrowing which also funds the public sector at the moment.

    It is the borrowing that is the tricky part and why we are where we are now.

    Sadly public sector pensions are not funded but paid out from state income which includes borrowing, even now. What a mess we are in!

  • rate this
    0

    Comment number 331.

    "Why is there this constant comparison with city bankers."
    i) they helped make this mess (ably assisted by the government)
    ii)the constant assertion that a senior civil servant represents the average public sector worker.

    "Lets face it if you averaged hours/days worked for avg private worker v teacher....the teacher gets paid a lot more"

    Really? Why don't you have a go then?

  • rate this
    0

    Comment number 330.

    #316 ManU Marnip

    But I thought you were a northern lad, Marno.

    This stunning revelation regarding your football allegiance can mean only one thing...that you live just outside of Guildford!

  • rate this
    0

    Comment number 329.

    321.Idont Believeit
    "Marnip 287
    So you think that hospitals, schools etc should be run at a profit so that they create 'wealth'?"

    No I don't, and I went to lengths to make this clear on numerous occasions. I'm not going to put a disclaimer in every post so as to stop someone misrepresenting what I say.

    I did not, and never have, even suggested this.

  • rate this
    0

    Comment number 328.

    Hutton Report shows "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)"

    that's 50 years from now! who knows what the world or the UK will be like then? If Hutton does then we should just make him PM forever. Or perhaps deal with the facts, which are 30% increase in cost of public pensions in the last 10 years

  • rate this
    0

    Comment number 327.

    323.VikingView

    Maybe you should do a bit of research, then? Come on, take some responsibility. Pensions don't work that way, and there's an abundance of information at your fingertips to explain it to you.

  • rate this
    +1

    Comment number 326.

    AW348 314

    Anyone who thinks we can afford the public sector in it's current state needs to look at Greece.

  • rate this
    0

    Comment number 325.

    So from what i understand some smug ****** in the private sector on 6 figure salaries and bumper pensions told all the workers we have to cut your wages and pensions or we'll go bust.

    Now some smug ****** in the public sector on 6 figure salaries and bumper pensions have told all the workers we have to cut your wages and pensions or we'll go bust. We're all in it together! Almost!

  • rate this
    +2

    Comment number 324.

    Why is there this constant comparison with city bankers. That is a small %age of the private sector. The majority of private sector employees are paid, on average, a similar wage to the those in the public sector. It is not a case of us and them. It is a case of equivalence. I put the equivalent amount into my pension pot but will get 1/4 of my public sector colleague. Happy days

 

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