BBC BLOGS - Peston's Picks
« Previous | Main | Next »

Pension commission's job: To avert national bankruptcy

Robert Peston | 12:32 UK time, Monday, 21 June 2010

If you are one of 11 million members of public-sector pension schemes, then you are a fortunate person.

Unless you think that the British government is about to go bust (and of course I've noticed that some of you do), then you can be 100% confident that the pension benefits you've accrued will be honoured.

As Stephanie Flanders pointed out a few days ago, there's not the faintest chance that the government will attempt to renege on past promises to pensioners.

John HuttonThe thinking of the commission set up by the Treasury and chaired by the former Labour minister John Hutton to review public-sector pensions may turn out to be unthinkable, to coin a phrase. But even then it won't suggest that the government should walk away from the explicit pension pledge it gave (and gives) to all those millions of its employees that they can expect to receive guaranteed incomes in retirement that are explicitly and directly linked to the years of service they've given.

However, what the commission will examine is whether the government should and can continue to make a pledge that future service will be rewarded in the same way.

There are three broad options:

1) maintain the status quo;
2) prohibit new employees from joining the schemes (what's known as closing the schemes to new members);
3) close the schemes to contributions.

So what do all the state pension schemes - for teachers, firemen, NHS employees, civil servants, and so on - actually cost?

Well there are two numbers to look at.

First there's the liability for all those past pension promises, expressed in today's money, which the Government Actuary's Department estimates as £770bn at 31 March 2008, or a bit more than 55% of GDP.

The new Office for Budget Responsibility in effect endorsed this number in its report last week.

To be clear, this £770bn total aggregated cost applies only to those public-sector schemes that aren't backed by any assets. It is a liability for so-called pay-as-you-go schemes, where today's pension payments are funded out of government revenues - our taxes and modest contributions from public sector workers - rather than an investment pot.

According to the actuaries department, as of the spring of 2008, there were 7.5m individuals who are dependent for the next 60 to 70 years on such schemes for their current and future pensions

Now, I don't want to worry you, but that £770bn number is arguably too low. It is calculated as if the IOU had been given by a private-sector employer; for those who care about these things, the future payments to pensioners are turned into today's money using a AA corporate bond discount rate - stay awake!

But because a public sector IOU is arguably more dependable and valuable than a private sector IOU, the discount rate should probably be lower, to reflect the lesser risk of being owed money by the public sector. And that would mean the total liability should perhaps be seen as closer to £1tn.

That said, this is probably an argument of academic rather than practical significance - in that £770bn is such a huge number that it does the job of focussing the mind perfectly adequately. It screams "Houston, we have a problem". Because if taxpayers were asked to stump up £1tn or £770bn right now, well we couldn't do it: the UK would indeed be bust, kaput, on Skid Row.

The primary job of the Hutton Commission will therefore be to come up with scenarios for stemming the increase in that liability.

Which brings us to the second really important number, which is the annual increase in that overall liability.

According to the Office for Budget Responsibility, the liability for those unfunded pay-as-you-go schemes increased by £26bn in the year end March 31 2008.

Which is serious money. But is probably - as the pensions expert John Ralfe points out - about £4bn too low, because (again) those liabilities are being evaluated on the basis of a private-sector risk of default rather than a lower public sector one.

Let's assume that the annual increase in the liability was actually £30bn. That's equivalent to about 2% of GDP. So non-trivial.

Here's the shocking statistic that Ralfe has uncovered.

He says the published annual cost of all the pension promises in the official financial accounts of various public-sector bodies is only £15bn - or about half the actual cost.

How on earth could that be?

Well it's because in 2001 the Treasury did something which Ralfe would see as spectacularly reckless - and many of you may agree.

The Treasury fixed, apparently for all time, the rate at which future public-sector pension liabilities are discounted or translated into today's money at 3.5% real.

Arguably this is more than three times the risk-free discount rate which the public sector should be using.

The effect of it has been to reduce the pension liabilities that individual public-sector institutions think they face and to massively reduce the cash contributions to pensions made by those institutions.

It means that a typical public-sector body will ask its staff to contribute perhaps five or 6% of salary to a scheme, with the employer contributing around 15% - for a total contribution equivalent to around 20% of salary.

By comparison, those few comparable final salary schemes that still exist in the private sector would demand aggregate employer and employee contributions of around 30% of salary.

To put it another way, the many billions of pounds paid by taxpayers and public-sector workers for their pensions are too low to the tune of at least 50%.

So it's difficult to see how public-sector pension schemes can be kept open without either a massive 50% or so increase in contributions by both employees and employers - which in this case is really us, as taxpayers - or a massive reduction in the benefits received by future pensioners.

In the case of that apparently necessary increase in the employer or taxpayer contribution, what we're really talking about is the recognition today of what we'd have to pay in the future.

And the moment we own up that the liability is real, that's the moment when it's clear that we have far less money than we thought to spend on schools, hospitals and all those other public services we care about.

Which is an unsettling idea just a few hours before the government is due to unveil a historic, record-breaking squeeze on state spending that's a response to the burden of the public sector's conventional debt, and takes no account of the hidden debt of its pension promises.


Page 1 of 2

  • Comment number 1.

    So that's two things Gordon Brown did to screw up UK pensions in both the private and public sector - firstly removing dividend tax credit in 1997 and now this spectacular error in 2001 you've referenced above. Nice one Gordon.

  • Comment number 2.

    "And the moment we own up that the liability is real, that's the moment when it's clear that we have far less money than we thought to spend on schools, hospitals and all those other public services we care about."

    So the far smaller amount of money left to spend on services we care about does not include the pentioners and future pentioners of those wourking in public services, but does include schools, hospitals, fire service etc?

    What an ironic statyement to make!

  • Comment number 3.

    I am not sanguine that the government will honour present commitments, let alone future ones. They seem more interested in repaying debts than in meeting their obligations to any citizens let alone those employed by the state directly.

  • Comment number 4.

    I might be off topic but I think the term is firefighter and not fireman unless of course you're suggesting only Male fighfighters have pensions.

  • Comment number 5.

    Govts do not understand pensions for the simple reason that any changes to the law take decades to work through whereas the attention span of any politician is barely 7 days.

    That govts have monumentally wrecked private pensions in beyond dispute, although I would argue that the start of the problem was under the Tories who required pension funds not to have healthy surpluses.

    Sadly public sector pensions are both unaffordable and unfair. Unfair because they are based on a system (final salary schemes) that Labour spent 10 years legislating out of existence in the private sector - it simply not tenable to have a law for the private sector and one for the public sector, it is that attitude that quickly results in some parts of the public sector (ie MPs) deciding that the law should not apply to them more generally.

    Public sector pensions are utterly unaffordable on the current system. The debate should be what system should public sector pensions be on, what level of contributions should the public sector as employer make and crucially how do we ensure that the poorly paid in the public sector get a meaningful pension.

    I do not have answers but it seems to me that the unfunded schemes will have to be closed completely.

  • Comment number 6.

    Is it not the case that these pensions are index linked and therefore can't be reduced by the hyper-inflation thats coming and it is this that will end up costing the UK economy dear?

    Apologies for earlier typos!

  • Comment number 7.

    It seems to me that the Public Sector is merely playing catch-up to the Private Sector. My company has just announced that the members contributions must be increased to secure the pension fund for the future liabilities. It has a current deficit and a plan to reduce that over ten years but the simple fact that we live longer wasn't costed in many years back. So in order to keep the fund afloat all members must pay more in now. If you can't afford the additional contributions you can swap to the lower benefit final salary scheme, opt to move to the Money Purchase scheme from the Final Salary scheme (as if anyone would!) or leave the scheme entirely.

    Sorry, but the public sector pension arrangements are of a different world. They need to be brought into the real world us private sector employees exist in. I have little sympathy for them, it's a painful change we've all had to make in recent times, there is no reason that public sector employment should be run by a different rulebook at a cost to the private sector employees.

    Cue serious abuse from the public sector workers reading this....

  • Comment number 8.

    There was a time when public sector salaries were generally lower than those in the private sector and guaranteed high-value pensions were seen as compensating for this. This is no longer the case.

    I am approaching retirement after well over thirty years of always contributing as much as I can to a series of what are now defined contribution schemes run by good respectable companies. I have also made additional contributions at various points. However, looking at current annuity rates, the sum total of my pensions now looks to deliver just over 25% of my final salary.

    So, even in retirement I will be paying taxes towards paying others' state pensions which will be well over twice as generous as mine! Why?

  • Comment number 9.

    I don't believe the argument here, Robert. The government could get rid of these pension liabilities quite easily: set up funded schemes for them all and hand over 770 billion of very long-term gilts as IOUs. Let's say the interest rate on these is a fairly reasonable (delicious irony here) 3.5%. Total cost? Just 3.5% of 770 billion, i.e., 27 billion per year. Not nothing, but these figures are not so large and very certainly not "bust, kaput, Skid Row" as you put it.

    I think you have let the large numbers cloud your judgment here. They are not unsustainably large considering the very long timescales involved.

  • Comment number 10.

    "4. At 1:08pm on 21 Jun 2010, Mike Morris wrote:
    I might be off topic but I think the term is firefighter and not fireman unless of course you're suggesting only Male fighfighters have pensions."


    New Labour by any chance?

    Seeing through that concrete and obvious mess of Ben Hur epicness level to spot the tiny inconsequential pin of potential unPCness in there.

    I despair. I really do.

  • Comment number 11.

    If I recall financial legislation correctly, a system which honours promises to existing members by using payments from new members is known as a Ponzi scheme and is illegal. Unless it's got a label on it that says "pension", in which case it's regarded as the normal way of working.

  • Comment number 12.

    Labour are not interested in financial stability, the party only has 1 instinct, to buy votes for their party support demographic through give borrowing money. The New Labour years will go down in history as the worst fiscally managed Government of modern times.

    The Labour Party still do not realise that UK PLC is now broke and can longer support the excess of the last 13 years which was funded by a property bubble which has left the country in debt for a life time.

    I cannot believe that Gordon Brown and Tony Blair are not in jail!

  • Comment number 13.


    thanks for this. I got thoroughly confused by Stephanie Flanders' account, but yours is a much clearer assessment of the problem. As you say, we need to have an eye to the total liability, as well as the annual increase in that liability. This nicely mirrors the government's paranoia about total public sector debt/GDP as well as the annual increase in that debt, i.e the fiscal deficit.

    However, i think you're not quite right in your approach to the solution. It is not so much a question of employer contributions versus taxpayer funding - both ultimately come from taxpayers.

    The issue is whether public sector pensions should be funded (and therefore paid for by taxes on current citizens) or unfunded (and therefore paid for by taxes on future citizens). If you were asked to vote, which one would you go for?

    So unsurprisingly, liabilities build up for future citizens. What we need to watch is the build up in that future liability, and ensure it will remain manageable for future governments - for instance, insist that the forecast annual cost of servicing the pension payments from taxes (as opposed to accumulated contributions) remains within a specified % of GDP.

    Once this is done, the overwhelming probability is that (a) taxes will need to rise if the balance shifts away from future citizens to current ones, and (b) future employees will not be given the level of benefits as current ones.

    I don't think it's any more complicated than that.

  • Comment number 14.

    To seek to dishonour pension entitlements built up by public sector workers to date would be a breach of contract so whatever we might think of the merits (or otherwise) of public sector pensions we need to honour what has already been earned. What we desperately need to do is change things going forward - at present we've got a situation where private sector pensions are coming under heavier attack from market volatility and increasing taxes in order to fund guaranteed public sector pensions. This kind of thing can only lead to resentment as the private sector works longer and harder to fund a growing public sector. I suspect few people object to paying taxes to fund nurses and teachers, but when our taxes pay for ever-more regulators who in turn increase the costs of doing business then sooner or later the system will collapse on itself.

    Unfortunately the UK is already a place where it's barely worth making a lot of effort unless you are confident of being able to float so far above the average income you never need to worry about money again. Even when looking to hire a low-paid worker the taxes are silly - it costs a small company somewhere over £20k to put £15k into the pocket of one of its employees. And let's not pretend £15k is much to live on for a year.

  • Comment number 15.

    "Which is an unsettling idea just a few hours before the government is due to unveil a historic, record-breaking squeeze on state spending that's a response to the burden of the public sector's conventional debt, and takes no account of the hidden debt of its pension promises."


    The Public sector has become a burden because of the recession caused by the banks and will be reduced as a result - just like in all recessions.

    The 3.5% discounted rates are actractive because of interest rates at 0.5% are they as discounted when interest rates are at 15%?????

    I notice you dont state how much these pensions ACTUALLY cost the tax payer each year? Perhaps because it is a lot less than a Bank bailout or two!!!

  • Comment number 16.

    Let's hope that this government has the guts to bite the bullet. The public sector pension gap has been staring us in the face for at least twenty years as successive governments have shied away from the inevitability of confrontation with the unions. Let us also hope that realism triumphs over selfishness and short-termism.

  • Comment number 17.

    It's instructive to see how the cost of bailing out the financial services industry has been seamlessly transferred to public sector workers. Is this smoke and mirrors, or what? And absolutely no suggestion that the cost of the bailout should fall on those who caused it, or those working in the sector that has been bailed out. How about their pension arrangements? Not on the government's agenda? Thought not!

  • Comment number 18.

    So, previous governments happily took public sector employee and employer contributions and used them to subsidise other spending when pension receipts were greater than pension costs but now it's reversed they are crying fowl.

    And those pensioners who paid relatively little towards their pension (compared to private sector staff) but enjoyed the lower taxes / higher spending the surplus in pension receipts allowed are insisting they should not contribute towards this shortfall.

    Who picks up the cost? Those of us in our thirties will pay yet higher taxes and if in the public sector will never get to enjoy the pensions we subsidise for our parents generation. There is limit on how much my generation can and will pay to support the excesses of our parents generation.

  • Comment number 19.

    Post 14 wrote:

    "To seek to dishonour pension entitlements built up by public sector workers to date would be a breach of contract so whatever we might think of the merits (or otherwise) of public sector pensions we need to honour what has already been earned."

    As in most case's where final salary type pensions are ceased, previous accrued benefits are usually still 'promised'. However, you can forget about 'breach of contract', because in cases where the pension scheme sponsor goes bankrupt, there ain't no money in the pot to pay for it regardless of what the 'promise' was.

  • Comment number 20.

    With over 33 years NHS service I'm at a loss to understand why suddenly we are the 'whipping boys' (and girls....). Unless I missed something the reason for our financial problems was the Financial arm of the Private Sector, who are back to getting their bonuses, not the Public Sector pension scheme.

    Having said that we should not be spared the pain of those in the Private Sector.

  • Comment number 21.

    Oh come on Mr Preston!

    " Now, I don't want to worry you, but that £770bn number is arguably too low"

    What is the purpose of this article other then to worry us! Is this responsible journalism by the BBC or mpore scaremongering.

    Why are you and Ms Flanders running around helping Gideon Osbourne try to scare everyone into accepting ideological retrenchment into a "smallar state"!

    Perhaps you could explain under exactly what circumstances the £770 billion or £1 trillion IOU would be called in.
    As you say this is an academic aggregated cost that will be paid over the next 70 years. As such it is affordable if (and under Gideons axe weilding I accept that it might be a big "if") we get growth. It should be included on the UKs balence sheet but comparing it to the GDP is pointless as it is a long term liability.

    Please show a little more responsibility!

  • Comment number 22.

    The good old capitalist pursuit of profit is what has led to the erosion of private pension schemes. Of course this has been helped on its way by the fact that companies can no longer rely on increasingly volatile markets to provide decent pensions for its employees, and the problem was therefore being shifted onto their books, which of course was an unacceptable dent on profits. Now those that have poorer pensions as a result look with envy at the public sector and think, well if we cant have it neither should they. No all public sector pensions are the same, pay in take out approach, the Local Government one for example. But it is suffering from the same volatile market issue, and that is only going to get worse. However, those in private pension arrangements should look to the chairman and chief execs of their companies. That’s where the true imbalance lies. These people have enormous pension pots that are sickening. Do these people actually work hard enough or are successful enough to justify these massive pensions, e.g. Fred the Shred anyone, I’m not convinced. Once again its one rule for them and one rule for us. In comparison the average public sector pension is very low, reflecting the low pay of staff, typical £8000 a year. You try getting by on that.

  • Comment number 23.

    I'm horrified by all the attacks on public servants. Did we cause the massive debts we have? No, yet we seem to be being made the scapegoats. Can I just set the record straight. I have been in the fire service pension scheme for 27 years, in that time I have without fail paid 11% of my salary into it. That is probably twice what the average civil servant pays into theirs, and far more than most people in private pensions pay into theirs. Yet you are baying for my pension saying it's unaffordable. Well why didn't you tell me that 27 years ago I could have opted out and saved myself a massive part of my wage at a time my wife was at home looking after my 3 children. At a time I was paying a huge 15% on my mortgage. At a time I was paying hand over fist for the poll tax!! I get fed up of people whinging on about public sector pensions, what was stopping you joining the public sector? Could it have been the poor wages in comparison to the private sector? I took a pay cut when I joined the fire service but had the foresight to look further ahead than my next pay packet.

  • Comment number 24.

    So we cut back on the pensions of state employees? OK so what happens than. Well there is less money to be spent and smaller lump sums and in consequence the economy turns down as do asset prices (house prices). So we cut again etc.etc.

    On the other hand this was all inevitable no matter who won the election - but this will not stop the opposition making hay. It is fairly predictable that the Tories will blame Labour and vice versa.

    We have all borrowed far too much, both in the public sector and the private sector. We did so on the assumption that the economy will keep growing for ever (and Chinese goods will get less and less expensive!) OOPS.... There is a numeric inescapably about all this - and it spells Depression!

    There is no short term escape. Thee is no quick fix. There is no superman who will come along and with one giant bound help us escape. What happened in the 1930s (and 1870s) will happen again - those with debts (and worse secured debts) will suffer disproportionately badly those with cash assets will gain. This will be a calamity for creditors of the state (such as pensioners, both retired and still working) as well as those with private pensions (being creditors of commercial pension funds) - you thought equitable life was bad - it is probable that it will be much worse and more widespread!

    Eventually interest rates will rise and returns on investments will again become positive for those firms that survive (and it is probably that the majority of private equity and other over leveraged businesses will not survive.) These survivors will be able to pay out their pension contracts because as rates rise so will annuity rates and after a while after considerable debt deflation and asset price decreases the economic world will start to function again - possibly within our lifetime!!!!

  • Comment number 25.

    #24 continued...

    It is all to do with the underpricing of money!!!!

  • Comment number 26.

    "20. At 2:10pm on 21 Jun 2010, paparossco wrote:
    With over 33 years NHS service I'm at a loss to understand why suddenly we are the 'whipping boys' (and girls....). Unless I missed something the reason for our financial problems was the Financial arm of the Private Sector, who are back to getting their bonuses, not the Public Sector pension scheme." cannot afford to buy the politicians.

  • Comment number 27.

    Another fine mess that has been swept under the carpet for years.

    Totally ignored when the money kept rolling in but now that the cash flow is under threat being forced out into the open. What a Shocker!

    No wonder the state pension is so pathetic. All the real money has been going to the public sector pension funds. With the huge increases in salaries and pensions based on final salaries little wonder they need sorting out and fast.

    It is nothing more than a disgrace that we have such a two tier system in this country where one sector of society can retire at 60 with a lump sum and final salary pension and many others have to rely on means tested benefits because they didn't work for government bodies.

    This also includes those whose private pension schemes either went bust or didn't come up to expectations.

    One thing that you should stop straight away is the pension based on final salary. How many of those in their last years before retirement have had salaries boosted in anticipation by grateful employers?

  • Comment number 28.

    This analysis fails to look at the actual schemes. The Local Government pension scheme, for instance, has assets of £120 billion, and last year had an income (contributions and revenue) several billions in excess of payments. With careful management, these scheme will continue to be sustainable.

    There are other schemes, however, such as the NHS one, were there are NO assets, and pensions are merely paid out of income, and any shortfall picked up by the treasury (I dont beleive it comes out of the NHS budget, but I could be wrong).

    Could we therefore have less emphasis on "public sector pensions" and more on which parts have the unfunded liabilities? And these are the result, not of decisions made by the last government, but by Governments many, many decades ago, when lives were shorter, and staff numbers fewer.

  • Comment number 29.

    But the £770 billion (or £1 trillion or whatever) figure you are using to scaremonger about the size of the problem is meaningless. It will never be called in in one go, but over a period of 40 years as civil servants retire. You may as well calculate the total value of state commitments for the state pension, the cost of all future NHS treatment the population will need, the cost of all future defence spending, the cost of all future policing, the cost of all future education services etc.

    A more sensible comparison is against GDP - how burdensome will the payments be? The Office of Budget Responsibility found this was fairly constant (indeed, declining from 1.7% GDP to around 1.6% GDP in 20 years or so). So no great affordability problem then.

    The big question - which is what this review is really about - is whether it is fair that the public sector has final salary schemes still open, when the wealthy global elite have stolen these schemes off their workers in the private sector. The answer is probably not (though - whatever meaningless comparisons between the salaries of unskilled private sector workers and teachers, doctors etc - there is no wage premium in the public sector, even after factoring in existing pensions).

    The question then is what is the solution. Is it a) pressure the private sector to give their workers decent pensions provision and force citizens to contribute to schemes; or b) make everyone's pension crap to allow the rich to get even richer. It seems the answer is the latter - but whether that is the best solution is unclear.

  • Comment number 30.

    Oh - and it would be interesting to see what the cost to the economy of higher-rate tax relief on the pensions contributions of those earning more than £100K is. My bet is it is bigger than the cost of public sector pensions. My bet is also that there will be no outcry by this by the right-wing.

  • Comment number 31.

    20. paparossco wrote:
    "With over 33 years NHS service I'm at a loss to understand why suddenly we are the 'whipping boys' (and girls....). Unless I missed something the reason for our financial problems was the Financial arm of the Private Sector, who are back to getting their bonuses, not the Public Sector pension scheme."

    Unfortunately it's because politicians made promises about your pension provision they cannot keep, without it being subsidised heavily by the taxpayer of the day. They did it for your vote (you voted NuLabour right?).

    So whilst you can sit back and enjoy your 30 year retirement on 2/3rds salary (which you and your employer have only contributed half to), the education budget is being slashed for the children of today. Children are easy targets you see, they don't vote.

    So no in fact you are not the whipping boy, it's the next generation of nurses and police officers that will be whipped. You'll be ok. They can't renage on their golden promises to you. They can for future generations though.

    Besides, why do I care, I've had enough of this farce, only 2 weeks to go and then OffToOz becomes a reality and I no longer get to contribute to this elaborate ponzi pension scheme.

  • Comment number 32.

    The government should do what my company did to me.

    - Announce a consultation on how to best fund our final salary pension scheme for existing members whilst closing it for new members.

    - Six months later announce the end of the "consultation" stating that they had decided arbitarily that the final salary pension scheme had to be closed for contributions

    - As a carrot they agreed to double match the employee contributions for the first year with a sliding reduction on that overmatching over a 10 year period.

    That according to "experts" was a generous policy. Indeed if you look at the shabby way other big businesses have treated employees lured to them with bogus promises of gold plated salary schemes.

    Anyway that would put the public pension schemes on the same basis as the best of breed private pension schemes in the new reality and is the least these hard working professionals deserve.

  • Comment number 33.

    "One thing that you should stop straight away is the pension based on final salary. How many of those in their last years before retirement have had salaries boosted in anticipation by grateful employers?"

    That has already stopped. Final salary schemes have been closed to new entrants in the public sector for a couple of years, in favour of an average salary scheme. All existing members will move to an average salary scheme from 2013.

  • Comment number 34.

    #20. paparossco wrote: With over 33 years NHS service I'm at a loss to understand why suddenly we are the 'whipping boys' (and girls....). Unless I missed something the reason for our financial problems was the Financial arm of the Private Sector, who are back to getting their bonuses, not the Public Sector pension scheme.

    "Why Suddenly"... because finally it looks like we have a government that is intent on fixing what have been long standing problems in the UK. There are many people (some on this blog) who have understood and tried to raise awareness about the public pension black hole for years and years.

    It has been very well reported that we have an ageing population. It's also very well known that most public pensions are not funded "pots", but paid out of current taxation. So it has only needed common sense, not economics education, to have known a day of reckoning is needed.

  • Comment number 35.

    My parents, both retired, formerly worked in the public sector. One was a college lecturer at a local FE college whose pension is paid from a funded scheme run by the local authority and the other worked for the NHS. I had always assumed that their pensions were index linked to inflation and therefore believed that pension liabilities could not be inflated away even if the government wanted to. What surprised me this weekend when I spoke with them was that their pensions do not appear to be index linked to inflation but instead increase in line with increases in public sector pay. This year, there was no increase in public sector pay and therefore no increase in their pensions. Perhaps another for a freeze in public sector pay?

  • Comment number 36.

    "Why should the public sector workers bail out the greedy bankers? The pension funds are they money, { not the governments }!!! Leave they money alone it is they money not yours.

  • Comment number 37.


    This is a wide and emotive area and there are many drivers which must be considered by all those concerned in seeking to resolve a problem that has been brewing for many years and has been ignored because of its political sensitivity.

    Start back just after the last world war - pensionable age was set at 65 when life expectancy was about 62 ie not many pensions were going to become payable. Over the past 60 years there has been no change to this age limit but life expectancy is now nearer 80 years now crystalising significant pensions liabilities. Living longer has been achieved by a very effective NHS and people should not realistically expect future generation to fund a "free ride" for 15 to 20 years for them just because we are now living longer.

    As an adviser to the private sector on this problem they (employers and employees) have had to recognise the financial dynamics of pensions obligations which has resulted in scheme closures, changes in employee terms and in the worst case failure of the employer because, unlike the public sector, the employer is not a bottomless pit of funding.

    Whether the public sector and, in particular the unions will be prepared to accept the reality of the situation (or even be prepared to believe it) remains to be seen. However, if they don't everything will eventually grind to a halt which could possibly be avoided with a significant dose of pragmatism now before it is all too late.

  • Comment number 38.

    We could of course privatise the public sector - just think how much the Govenment would get for "999", couple of David Bedford lookalikes running down the street with a stretcher - gotta make money.

    What do we want to pay for and what are we prepared to pay for it?

    Doesnt matter really because in the end however much it costs, if it is in the interests of saving capitalism then its a blank check, however if its in the interest of social welfare then its gonna go.

    Average public sector Pension is currently £8K pa - AND THE TORIES A GONNA PLAY THEIR FIDDLE AGAIN

  • Comment number 39.

    Final salary schemes worked fine during the baby boom years when men were paid more than women but generally died within 5 years of retiring. When we all started living longer and paying women more fairly, both public and private sectors should have either increased the retirement age; or pension contributions. The trouble is, successive governments viewed tackling such issues as being electorally un-popular, so we're left with yet another financial headache at a time when we can least afford one. Rob's absolutely right, if we decide to stick with the current model, then George Osborne's cuts will be deepened even further, since more of the nation's tax receipts will need to be set aside for public sector final salary schemes.
    For me, final salary schemes are clearly unsupportable, since someone else inevitably has to pay the shortfall. Take for example, an average private sector worker, on an average salary with an average net growth rate of 2%, working for 45 years, putting away 10% of their salary a month. Using simple compounding, they will only end up with a pension pot of £200k. At current annuity rates, that will give them the princely sum of £5,000 pa, or around 20% of their average salary. If he had a twin brother working in the public sector, they could look forward to a pension of £18,000 pa (60% of Average Salary)... but bizarrely partially funded by tax raised against their significantly more impoverished sibling. Not only is this not right; it's clearly unsupportable, which is why the issue needs to be tackled now ... no matter how un-palatable it seems.

  • Comment number 40.

    re the various posts by public sector workers saying bank bail out nothing to do with them
    Cause of bank bailout in UK in my opinion was as follows:
    a)Labour government wants large public sector and welfare state
    b)labour government sees taxes on financial sector as way to pay for it
    c)Labour governement lets self interested bankers get away with financial murder and lets them effectively control enconomy
    d) banks in trouble, risks financial melt down
    e)Labour government forced to bail them out
    f) Everyone suffers except bankers

    I know above is a bit simplistic but blind eye was turned to banking world wide as it was a golden goose generating money for every governments wish list

  • Comment number 41.

    One option seems to have been overlooked here. Tax all pensions except the state pension at 40%, unless your total income comes under £10,000. If the public sector benefits are that excessive, then taxing them hard will claw back the unfairness. If private sector pensions are that mean, then they won't be affected. No contract will have been broken, and no additional hardship will be inflicted on the poorest. You might even be able to make the state pension a little more generous.

    Of course you'd have to exempt bankers from this tax, but after all they're a special case for everything else as well.

  • Comment number 42.

    For the miffed public sector employees - the point about this, is that regardless of recession/banking crisis, the public sector pension schemes are hugely under contributed too by the members, with the slack being met from other parts of the economy.

    You don't seriously think that the cost of providing up to 2/3rd of final pay, index linked for the remainder of life, without risk, only costs a small annual percentage of present income.

    The DT has run some 'what if' figures today comparing the contribution cost difference for same pension income between private sector and public sector employees.

    The public sector schemes are risk free to the employee's at great cost to this nation. This has been going on along time, considerably longer than before the current economic crisis.

  • Comment number 43.

    I am not sure why Robert Peston believes that the government cannot renege on the public sector pension promises it has made in the past? The country cannot afford to meet these previous promises and why should public sector pensions be anymore secure than say someone's salary? - there are many cases of private sector salaries being cut to save jobs and businesses. Lets hope the government have the courage to tackle this massive liability and the sooner the public sector wake up to the real world the better.

  • Comment number 44.

    This is about politicians creating these very generous rules for themselves, again! Only because they are public servants they had to extend the generosity of these rules to all the other public servants in one form or another as well.

    What the politicians wanted to hear, from their civil service mandarins, was "yes" we can afford these pensions, NOT "no" we cannot afford these pensions. So the civil service dressed up the picture of affordability, telling their bosses what they wanted to hear by, "fixing, apparently for all time, the rate at which future public-sector pension liabilities are discounted or translated into today's money at 3.5% real." How pathetic!

    The problem, the real problem, is that so many millions of British people do not have the slightest idea of how the politicians, the current and previous elites (media bosses in-particular) and business interests in general have conspired to rip-off the ordinary hard-working people for decades!

    Our politicians and elites are an utterly shameful and selfish bunch of wasters, (and that's putting it as politely as possible.)

  • Comment number 45.

    As far as funded public sector pension funds are concerned, the beneficiaries should now and in the future be paid at whatever level the fund can prudently afford. It is an internal matter for the fund concerned and its members.

    As far as unfunded public sector funds are concerned the wicked truth is that the members have been grossly misled over the years by the economically illiterate politicians whom they voted into power. There is only one way to deal with the problem and that is to cap all public sector pensions at £50,000 p.a. and reduce cash lump sums to a maximum of £50,000. Yes, I know how unfair it all is, but there you are, that is the truth that faces us. Never mind that it is a breach of promise to those with accrued rights, the country is effectively bankrupt. And tell the International Court of Human Rights to take the highroad to hell when it sets aside this decision.

    But all this was brought upon us by the greed and dishonesty of the banks. No investment banker should be allowed to earn, with bonuses and commissions, and whatever other incentive schemes there may be, more than the beneficiary of an unfunded public pension fund in any given year. Every penny over and above that should be taken in tax. Moreover 70% of all the profits of the banks should be held in a Government supervised Trust Fund until the economy is once again solvent.

  • Comment number 46.

    14. At 1:41pm on 21 Jun 2010, ThoughtCrime wrote:
    Unfortunately the UK is already a place where it's barely worth making a lot of effort unless you are confident of being able to float so far above the average income you never need to worry about money again. Even when looking to hire a low-paid worker the taxes are silly - it costs a small company somewhere over £20k to put £15k into the pocket of one of its employees. And let's not pretend £15k is much to live on for a year.

    I completely agree with this and think it is, or should be at the heart of the discussion about public sector reform.

    I meet intelligent people all the time who are aghast at any cuts in the public sector on principle. They rightly point out that the public sector provides important services that would otherwise not be available. It also employs (gainfully) many people who would not get a job in the private sector but who nevertheless work hard and are productive. I agree entirely with this. Who couldn't?

    For some reason though I never seem to have a meaningful discussion with the same people on how the thing should be paid for, probably because it is complicated and they are invariably not numbercrunchers and their idea of the private sector is greedy banks and exploitative monopolies therefore presumably they have in their minds that the means to pay for it comes from them alone (not debt and not smaller businesses)

    The fact is that owners of small and medium size companies are sick to death of public servants putting barriers in the way of them doing business. Such businesses would gladly take on more employees if there was less red tape and also less tax on the company (not the employee) just for employing someone. They would gladly continue to collect and pay over the taxes to the government such as PAYE, VAT and Corporation tax as they do now if they got a little recognition of just how vital their contribution is to the country and a reduction in the threat from litigous employees, a little more flexibility when it comes to maternity/paternity rights, health and safety, discrimination/ Equality legislation, pensions, sickness and finally just a little more customer service from HMRC when they are trying to collect and deliver the taxes, mentioned above, on their behalf.

    We really need to keep these business owners on board because if we keep hitting on them the country will have nothing left to generate the income that will hopefully get us out of this mess in about 30 years.

  • Comment number 47.

    One issue that is often raised in these debates is that of choice - people have chosen to work in the public sector partly because of the pension rights and, in some cases, may have accepted lower basic salaries. This is a fair argument to make. As RP indicates (and I've read elsewhere), the combined contributions made by an employer and employee in the public sector to fund the pension entitlements is around 30-40% of salary. Surely this information needs to be made more ready available so that people can make comparisons and choices about working in the public sector and the private sector.

  • Comment number 48.

    31. At 2:57pm on 21 Jun 2010, OffToOZ wrote:
    "Unfortunately it's because politicians made promises about your pension provision they cannot keep, without it being subsidised heavily by the taxpayer of the day. They did it for your vote (you voted NuLabour right?)."

    err, no actually - SNP :-)

    "So whilst you can sit back and enjoy your 30 year retirement on 2/3rds salary (which you and your employer have only contributed half to), the education budget is being slashed for the children of today. Children are easy targets you see, they don't vote."

    My scheme is 80ths so a maximum of half pay after 40 years service, but I get your drift.

    "Besides, why do I care, I've had enough of this farce, only 2 weeks to go and then OffToOz becomes a reality and I no longer get to contribute to this elaborate ponzi pension scheme."

    I wish you well - safe journey.

  • Comment number 49.

    I see there are a lot of posters who are ignoring the facts:

    Fact - the average public sector pension is actually £4,000 pa - a far cry from gold plated, and not some massive proportion of final salary (although those do take place).

    Fact - There is not one "Public Sector Pension Scheme" - there are actually quite a large number of seperate schemes, and some of these are actually fully funded by their members contributions, and therefore will not be a burden on the taxpayer.

    Fact - although the actual number look scary, the % of GDP stays practically the same over the next 20 years. The "affordability" of public sector pensions does not change. Well, as long as we can grow the econonomy.

    Fact - Public sector pay is often much lower than its private sector equivalent. Independant calculations show that even the "generous" pension schemes only go some way to rectify this.

    Perhaps we should start this review with a look at MP's pensions? An MP can retire after 5 years in the commons with a pension much more generous than if he had been a council worker for 5 years.

  • Comment number 50.

    I am confused why is no-one picking up the elephant in the room ?

    What the albeit somewhat right wing biased collective within this blog seem to be saying is that funding a public sector pension for moderately paid public servants to retire into a comfortable old age is financially bankrupting our country.

    That may or may not be true. If it is true what kind of sad commentary of our country is that ? How on earth do you propose to attract high quality employees into the public sector if all they have to look forward to after a lifetime of service is an extended period of poverty and suffering ?

    We as a nation seem to have lost our way, what is necesscary for social cohesion is a pension system across the public/private divide that is fit for purpose, where people can afford to life out modest retirements on the back of sensible saving throughout their working life. Such saving needs to be supported by both employee and employer at credible levels such employers can maintain profitability and employees living wages.

    I would argue that property and our obsession with it and passing it on across generations is at the root of this issue. How is it credible that a generation of pensioners suffers in poverty whilst a minority of the subsequent generation receives 100s of thousands of pounds as this asset is passed on ?

    We are one of the richest nations on earth, surely it cannot be beyond our wit to construct a system where noone is left to go without in their old age.

  • Comment number 51.

    Dave: "I'm horrified by all the attacks on public servants. Did we cause the massive debts we have? No, yet we seem to be being made the scapegoats."

    I'm sure you personally didn't Dave and I'm sure you work very diligently like the rest of us.

    The sad fact is that we've all been living beyond our means and the government more so than any other organisation. UK PLC has been operating at a loss for some time because of the overvalued econonmy. Now we are bust, the failure of a couple of banks hasn't helped but we've had a problem a lot longer than that.

    Public sector pensions are an example of living beyond our means, i.e. we promise to pay you a great pension because we won't pay you - future public sector workers will and if they can't afford it, we'll take it from private sector workers through taxation. Not fair when private sector workers have seen their own final salary schemes close and their own investment pots dwindle in a shrinking economy.

  • Comment number 52.

    Figures are just the indicators of what's going on, the scoreboard of the game... yet we have promoted the discussion on the 'numbers' to some sort of quasi Theological level where as long as we talk about them...nothing 'bad' will ever really happen.

    But 'bad' is happening right now and very visibly... the closed shops are on the main streets of regional cities now, and not just the sattelite towns..even the call centre jobs are going the way of coal, iron, steel, textiles, and they're still looked on as 'sunrise jobs'in some areas.....

    This recession has happened even while the 'public sector no cuts' policy has been in full spate.... the public sector is draining the life out of the private sector and either it gets managed down or at some point a catastrophic collapse in the system will do the job...

    The argument seems to be whether we cut 'this year' or "next year" as far as I can tell, as if December 31st or Jan 1st..or that month or this carries any real power of change.... but given the length of time we have had zero interest rates, and the fake £200Billion injection... why isn't the argument we make interest negative, print another £200 Billion...

    Why isn't the £200Billion of quantative easing not now going to happen just another example of mad and premature cost cutting?

    No cuts is just one point on a continuos line of options involving increased spending....

  • Comment number 53.

    Much of the controversy connected to public sector pensions arises from the way we think about pensions -that is ,separately from other benefits. The current position is that a very large part of the +£200 billion social security budget goes on means tested benefits to pensioners. I would conjecture that the current position is that in old age a very significant proportion of (particularly low paid)private sector workers end up dependent on state means tested benefits because they have no occupational pension or a very limited one arising from inadequate contributions by them or their employer. Many low paid public sector workers will end up just above the means tested benefit schedule. I would also point out that many public sector pensioners with higher pensions pay tax on their pension - are the figures quoted the gross contribution from public revenues or the net sum ,after tax paid by public sector pensioners? The subsidy to private sector workers in old age may in total be larger than the subsidy to public sector pensioners! In discussing pensions we must look at all of the benefits to the elderly and all contributions they make over the life cycle. It is also important to keep in mind that the means tested benefit system has created a disincentive to all forms of saving for old age among the less well-off.
    We are probably also going to soon have a discussion about free or subsidised social care for the elderly which will revolve round the bizarre desire of some groups to have the tax payer subsidise bequests of well-off old houseowners to their descendants (probably also well-off). The cost of this is likely to dwarf the annual net cost of public sector pensions.

  • Comment number 54.

    Dear Robert, I understand the argument you put forward and to an extent I agree. However, I also believe that focusing on the large capital numbers, whilst understandable, is not correct.

    The £770bn is a capitalised value of the income stream of these pensions. However, as they are PAYG and as there is no capital death benefit these pensions are not capital by nature. Therefore the decision makers do not necessarily need to deal with this as a capital debt that needs to be paid in the same manner as Soverign Debt. For accounting purposes yes there is a big number but nobody will ever have to write a cheque for that number.

    Perhaps a more accurate way of looking at PAYG pension liabilities is akin to the liability of interest payments under a perpetual gilt, essentially just a (large) drain on income.

    This is a lot more attractive because HMRC recover a pretty high proportion of our income through Income tax and VAT. In addition the present day (and hopefully future)cost of the liability is offset by the degree of employer and employee contributions (which undoubtedly will have to rise).

    If they want to make Public pensions more affordable to the nation the decision makers could plug the channels by which the income turns into capital outputs from these PAYG schemes:

    * Ban external transfers from the scheme as is already done with some schemes
    * Remove tax free lump sums - it is an historic anomally in any case
    * Where pre-retirment lumpsum death benefits are not re-insured out, then do so

    Then they would have to take steps to limit the pension income via a lifetime earnings link rather than final salary , cap inflation links, reduce/remove spousal benefits. These of course are serious vote losers.

    For me the scary part of the pension funding issue is not the PAYG schemes, it is those schemes that USED to be PAYG and whose members still believe that they are!

    Take for example devolved Local Authority schemes in some of our very Blue home counties, that are funded (they have an investment pot) but the LA has made such a cod of the Investment Management process that irrespective of ageing population, higher salaries and all the other problems would have still been insolvent.

    There is a high degree of assumption amongst members of these schemes that they are PAYG and on a winding up basis the schemes are 25%+ shy of the funds that they need. When/if these schemes get wound up thats when the tax payer should wince because I dont see any colour of Government having the stones to let people sink to that degree.

  • Comment number 55.

    I have heard that in the last government, whilst talking about increasing the age at which the meagre old age pension could be drawn, MPs made their gold plated (or is it solid gold) pensions fully realisable after 20 years of service, as opposed to the 30 years that it had been.

    Could this be true!
    If so I can see why a large number of MPs were able to stand down at the last election

  • Comment number 56.

    No problem in coming up with funds for the banks...but for the people, well that is another matter. It all ends up being paid by the taxapyer. All those investment funds that trusted the banks and the governments went in the toilet once the bankers had collected the upfront fees and made their millions. This is a politcal move to maintain some order in the public otherwise people would be thinking about new forms of government rather than the current system of taxpayer insuring the wealthy with no benefit for themselves. Political survival strategy would be the best assessment of all of this. Now the public can fund the banks and their own retirement accounts that were diminished by the banks..the banks must be happy that they have no responsbility to make good their misdeeds, but of course they have never had to take any responsbility.

  • Comment number 57.

    Government Pensions are predominantly debt based; they are simply future promises to pay.

    Assuming that those about to be given the task of working their proverbial arses off to pay for them are happy to accept such a challenge, there isn’t a problem.

    But if they’re not happy with such a scenario, then there probably is.

    And to find out, you’d have to ask the younger generation what they thought. Because predominantly they are the ones that are going to have to pick up the tab.

  • Comment number 58.

    "And that would mean the total liability should perhaps be seen as closer to £1tn."

    This whole argument is rather dishonest. It's as if there were a deliberate attempt to confuse the difference between paying utility bills for a property and repaying a mortgage. The government would only be asked to stump up £1tn if all the pension schemes were privatised, and needed to be backed by investments rather than tax receipts. Ie the cutters are arguing that this should be regarded as a capital debt rather than an annual spending liablity. As Stephanie Flanders' article makes clear, this is not going to happen. What's more, if it did it would push down the yields on ALL pensions, as there would be correspondingly higher asset prices.

    It's strange that similar arguments aren't being applied to the real cost of future PFI obligations, as this scheme WAS designed to put future capital debt off balance sheet.

    There is a general problem is society because of increased longevity, but this needs to be discussed in an informed and honest manner. This mostly isn't happening at the moment.

  • Comment number 59.

    48. At 3:39pm on 21 Jun 2010, paparossco wrote:
    "I wish you well - safe journey."

    You too - enjoy your retirement ;-)

  • Comment number 60.

    err sorry, but the banking crisis and Govt bailout is not the cause of this review - it's just brought it fwd 5-10 years. Public sector pensions in their current format are not sustainable. For those that don't believe it, here's a very simplified example.
    Total Pension
    30yrs service, earning 1/60th of salary for each year of service = pension of 30/60, ie 50%, of salary at retirement payable for 20 years on average. Putting a value on the pension, 50% x 20 = 10 years of salary
    Employee Contributions
    Employees contribute approx 6% of salary each year, paid for 30 years; 6% x 30 = 1.8 years of salary in contributions.
    Cost to Govt
    The Govt has got to pay the balance; 8.2 years worth of salary to meet the cost of the pension, if you worked for 30 years.
    If the Govt pays this pension by taxing someone else with the same salary, that's a tax of 8.2/30 = 27% of salary each year if were to fund the pension like the local authorities do, ignoring investment returns.
    Although this is a massively simplified example, I hope it demonstrates to some of you just how expensive the current pensions are. Govts can't afford to spend this much of the tax take of pensions alone. Some of us need free healthcare and eductation as well! So what must happen? Either EE contributions go up, benefits go down or a bit of both.

  • Comment number 61.

    @42 Roadie

    Who gets 2/3 of former pay? Nobody that I know. Most people can't get more than half and usually get less - unless it's a "Fred the Shred" syndrome - a senior manager compulsorily retired early for uselessness.

    It IS an issue, both in the public and private sectors, that sometimes it pays to be incompetent.

  • Comment number 62.

    Three reasons why the pensions problem is bad.

    1. No government should ever be trusted with an unfunded future liability whether it is NI, pensions or any other scheme, they will in the end 'save' cash by using the money now in the vague hope that it will be alright in the long term.

    2. Th EU has been messing about with our pensions legislation for some time now. Part timers, Unusual 'family' situations, or any other person or group claiming a pension seems to have won their case, and with it hundreds of millions of pounds of liabilities to the ordinary tax payer. People just don't understand the sums involved, just giving someone a full NI stamp can be worth hundreds of thousands of pounds per individual.

    3. The obvious one is that people are living much longer so a pension designed to allow someone a few short years of comfort after a lifetimes work, and who can argue with that? has become for many a full time salary for as long again as they have worked.

    Three Solutions.

    1. In future offer funded schemes for public as well as private employees, all pensions to be Money Purchase Schemes.

    2. Don't allow any further drift towards pensions for anyone who has been near a public sector job. If it is part of the contract so be it, if not then no pension is allowed.

    3. All public sector employees to retire at 70 or later, that way you restore the original purpose of the pension and save a really significant amount of money over the next years.

  • Comment number 63.

    I am a poacher turned gamekeeper. I receive 50% of my public service pension now(aged 44), 75% at age 55 and the full preserved pension at 65-all index linked to RPI.
    I am currently working for a company(having left the public service) and have received a 40% paycut-I do not pay into the company scheme(which contributes up to half of what I do up to £5000/year). I am only now beginning to realise the full value of the pension that I have already accrued.
    I will have to contribute at least 10% of my salary to get a pension close to £3000/year at age 65(after 21 years of contributions).
    After 23 years of public service I have accrued a pension of £23000(pay was abated at 6%).
    The difference between the 2 is stark in all respects! To my mind Public service pensions HAVE to be reviewed-and the 'apparent' low pay of the public servants should be considered with an 'equivalent' remuneration package in the private sector(that obviously includes pensions). Anyone who thinks differently has either got their head in the sand, lives on planet mars or is a member of that well known party that has 'tried to rob everyone without them knowing, accept responsibility for nothing, I'll bend with whatever wind is blowing for a vote and buy our second homes for free called labour!'
    Sorry to the future generation-my and previous generations can only leave you a memo-'there is no money left'
    I believe public servants need to be educated in what they have, rather than ranting about what they haven't. They do have a choice. I would not wish to erode the generous benefits they receive-but I do think it is time for them to pay for what they will receive-like us all.

  • Comment number 64.

    It's interesting to see people wondering how we get good quality staff into the public sector if we don't offer them a good pension.

    Here's a radical idea. Let's cut the public sector jobsworths who do nothing but create problems for everyone else and make sure nothing gets done in a hurry. Get rid of them - they are useless and merely put a drag on everything around them. Then pay the people who are good at what they do a salary that is consistent with what they do.

    There's also another big question which is where to draw the line between the public and private sectors. One major issue with the public sector providing a service is that it is funded through taxation of one form or another, which means we all pay for a service even if we never use it and don't want it. When the private sector provides a service we are not obliged to pay for it.

    A classic example is the library. A working person has little access to their local library because when it is open they are at work and when they are home the library is closed. Yet they are obliged to pay for it. If libraries were purely educational it wouldn't be so bad but looking at the trashy "literature" on offer at many libraries it effectively means I'm being forced to pay so someone else can read trashy novels without paying for them.

  • Comment number 65.

    @45 NewProtector

    "As far as funded public sector pension funds are concerned, the beneficiaries should now and in the future be paid at whatever level the fund can prudently afford. It is an internal matter for the fund concerned and its members."

    But there is no fund - State pension schemes are like a delayed salary - today's pension contributions are supposed to pay retired members. If there were a constant ratio of workers to pensioners, and a predictable survival rate, it might be workable - and more efficient than using pension contributions to gamble on the stock market.

    Actually, I'm convinced that in the end we need to have a socialisation of ALL pension schemes, in order to have a more equitable system.

  • Comment number 66.

    As a NHS worker for 25 years who has conttibuted to the pension scheme throughout this period at 6.5% of my salary I am fascinated to read about these wondeful golden handshakes that I can look forward to when I am 60. During my time I have calculated I earned on average around £20,000 per annum. I will take home £9,000 per annum at 60 under the NHS pension scheme and I consider myself to be well paid in NHS terms concomitant with my responsibilities. I understand that the average pension in the NHS is about £4,000 per year reflecting the low pay of most NHS workers. I smiled broadly at the suggestion that these pensions are capped at £50,000 per annum as only a tiny minority of doctors and extrememly senior managers with over 40 years service would get anything close to this amount. You are all obviously caught up in Clegg's lies about golden handshakes - if only that were true.

    NHS pensions compensated staff for the low wages paid. My sister is a physiotherapist and would earn 2x as much in the private sector but of course that is not tenable in the public sector unless you wish to privatise the NHS of course or have no staff. If you wanted to give them a smaller pension you should have paid them more rather than relying on monopolies and good will to run your public services.

    Finally Robert knows full well that for UK to become bankrupt because of public sector pensions all public sector workers in unfunded schemes would have to reach 60 all that the same time which is patently ridiculous. Facts rather than fancy please. Stephanie's piece was much better informed and did not assume the government is not trying to soften up the country for an assault on the public sector as happened under Thatcher who spent most of her time trying to dismantle it by withholding funds and cutting pay. This is just another side of the same coin.

  • Comment number 67.

    I wonder what will happen when the graduates of today realise they are being taxed to fund the pensions of their grandparents while also repaying their student debts, and also realise that they are expected to save for their own pension out of what's left after being taxed to pay for everyone else's pension too.

  • Comment number 68.

    I mentioned earlier that pensions are little better than a glorified Ponzi scheme. A Ponzi scheme works fine for as long as enough new people join the scheme to fund the payouts to existing members. When the flow of new members slows the scheme implodes, leaving the most recent contributors out of pocket.

    For as long as each generation was larger than the one before it a pension scheme based on Ponzi thinking could work - for each retired person there would be plenty of working people to fund their pension. But looking at demographics we see that these days each generation is smaller than the one before it so, all things being equal, it is clear that the Ponzi pension scheme must collapse.

    Of course the situation is further complicated when we look at who is having the children. Working parents increasingly struggle with the costs of raising children so typically have fewer children. Non-working parents (i.e. the so-called "benefit brigade", not parents temporarily out of work) are less constrained by the costs and often have far more children. This in turn means that a shrinking army of workers is expected to fund the pensions of a growing elderly population while also funding the benefits of a growing unproductive population. Just for good measure they must pay for all this (through tax) before they get any of their own money to fund their own pension or indeed anything else they might want for themselves.

  • Comment number 69.

    The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, assistance to foreign lands should be curtailed lest Rome become bankrupt, the mobs should be forced to work and not depend on government for subsistence.
    Cicero, Marcus T. 50 Bc
    Makes you think doesn't it?

  • Comment number 70.

    You say:

    "That govts have monumentally wrecked private pensions in beyond dispute, although I would argue that the start of the problem was under the Tories who required pension funds not to have healthy surpluses"

    That is probably true, but we in the private sector know full well what happens when there was money 'sloshing' around in our pension funds until Pa Broon the Labour thief found it.

    Crivvens jings look at ah that munney I ken whit to dae with it, AHL WASTE IT!

    All Politicians are not to trusted with property not their own.

  • Comment number 71.

    Sasha Clarkson wrote;
    Actually, I'm convinced that in the end we need to have a socialisation of ALL pension schemes, in order to have a more equitable system.

    Socialism isn't working, even those who profess to be one (in power anyway) abuse the system they supposedly believe in, especially if it benefits them at public expense.

  • Comment number 72.

    Dave wrote:
    I'm horrified by all the attacks on public servants. Did we cause the massive debts we have? No, yet we seem to be being made the scapegoats

    Dave, most of us know the difference between Public Servants, and Public Servants.

    I for one fully appreciate what (many) Public Servants do and the risks many of them take. I have no problem with your pension you earned it.

    The Public Servants who are deserving of ire are the council leaders on HUGE salaries who can't be sacked, even if poorly performing, and the legion of non job people.

    Another reason for the resentment is those in the private sector have more financial effort to put into their pension fund.
    We're all in this together.

  • Comment number 73.

    One or two contributors here grasp the point and it is the same one as pointed out by Stephanie previously.

    A private sector individual needs to put away 40% of their income every year for 40 years to achieve a similar pension to the same public sector individual.

    That is 40%, not 4,6,8,10 or whatever, it is 40% !!!!!!!!!!!

    And that calculation assumes an average rate of growth of the investments in the private sector pension pot - over the last 10-12 years, the average pension will will have shown little or no growth, thus the 40% figure could easily go up to 50%.

    The public sector schemes carry absolutely no risk. The pensions are paid irrespective of market performance. And if the market performance has been bad, the government must find more money to pay out the same pensions.

    It is insane and no wonder those in the private sector are driven potty by the inequity.

    Public sector pensions are wildly inaffordable.

    I saw a comment that the average public sector pension is £4K, I have my doubts on the veracity of this, it may have been the average NHS penion.

    Still, the average private sector pension pot is £25-£30K and that will produce an index linked pension at 60 of around £900 a year, still one quarter of the said £4K average.

    MPs pensions are plainly ridiculous, as are the those of the many well remunerated senior civil servants who advise them.

    I say, do not touch the public sector pensions of those with a pension of £5K or less, look at those between £5K and £15K and look at swingeing cuts/massively increased contribuytions on those over £15K with a sliding scale on the higher pensions.

    Many just do not understand that to fund a £30K pension for a retiring public sector manager will cost £1M.

  • Comment number 74.

    It’s about time that we cut the pensions of these useless public servants – Let starts with armed forces – what use are they? They only lay down their life for their country, so do they deserve a gold plated pension – And then there are the emergency services – another worthless bunch of public servants - They should all be transferred to the private sector!

    Don’t let get onto the NHS and those useless Doctors and nurses. It about time that these people realised that that the country cannot afford them and their pension deals.

    I so incensed, fortunately I’m off to the Land of Oz where I’ve landed a lucrative banking job!

  • Comment number 75.

    I'm shocked at all the bitterness aimed towards public sector workers. I'm staggered that so many could begrudge a nurse for example with 40 years hard work and service behind her, a pension of £13,400 pa. Nick Clegg may call that a golden hand shake but in my opinion it's desrved.

  • Comment number 76.

    post 75, edit I should have said 'behind them'

  • Comment number 77.

    Robert, while I accept that there are problems with public sector pensions, I not only know that you are wrong on some, which I am happy to point you in the right direction, but I am sure you really know the correct information, but this does not give you the impact your want!

    First point, as a firefighter I paid eleven percent contributions to my pension almost double the six percent you quote! Which incidentally is also much closer to what you suggest should be paid, I would accept that there may well be other pension schemes paying the six percent you quote, but you bunch a whole load of schemes together for maximum affect, the firemans pension scheme is in there.

    Two, you give three alternatives that could be made to change the pensions, perhaps you should take your own advice, stay awake!! Most public sector final salary schemes have already taken the no. 2 option, the firemans final salary pension scheme has been closed to new members for about three or four years now, as have many other schemes, of course being a good journalist and not wanting to misslead the readers you would have researched this? All new entrants to the fire service for the past three or four years have a greatly reduced pension and longer to work in order to receive a pension. Telling the public this would not have the same dramatic impact though!

    just as the final salary schemes that have been closed to new members will become increasingly expensive to the treasury, as less and less are paying in, in time it will then die out as pensioners start to die, and the new schemes that are funded take over, then finally the treasury will have little or no contribution, thats if the the actuaries have there figures correct!

    you also fail to point out that there have been years when the pension contributions from employees went straight to local authorities or the treasury as there was more money coming in from contributions than going out in pensions, no one wanted to change the system then, even though some union representatives suggested that money should be invested!

    I am certainly appreciative of my pension, however I believe it is wrong to set the private sector against the public sector in this way, final salary pensions were prevalant in the private sector up to the last few years when employers started to drop them for several reasons, one being gordon Brown raiding the pension pots, or when the employers took massive pension holidays when the funds were doing well, both of which caused huge falls in value to the pension pots, none of this was the public sectors fault, public sector pensions started to change just after private sector employers started to close their final salary schemes. All I ask is that you stop demonising all of the public sector. I would also beg the question at what point do you accept that the public sector becomes totally demoralised by all the vitriolic attacks, as if public sector employees were some sort of second or third class group unworthy of a place in society?

    Perhaps you could give us a real look at the improved MP's pension only approved recently, certainly in John Hutton and Frank Fields time in parliament, I can't say I heard them complaining it was to expensive. How much do they pay, for how long and what benefit?

  • Comment number 78.

    Perhaps the ONS should calculate how much of our GDP we allocate to pensions (state, public, private, personal etc) in total and how that resource gets distributed across the various workforce sectors. We could then properly identify who is getting more than their fair share of the nations pension pot.

  • Comment number 79.

    It is clear that public sector workers have to be treated much the same as private sector workers where final salary schemes are becoming things of the past. Defined contribution or money purchase must become the order of the day going forward. However, acrued benefits are protected. In addition contributions by workers have to be brought into line. The employers contributions are being made by the taxpayer.

    The government must take steps to address the pay-as -you go timebomb which will take a considerable time to work through. Perhaps earmarking some of the NI contributions by using them for an intended purpose rather than putting the money in the big pot.

    Nick Clegg is fond of fairness. Let's see some action rather than rhetoric.

  • Comment number 80.

    66. At 4:51pm on 21 Jun 2010, manchesterclaire wrote:

    I for one am not going to dispute you don't deserve some sort of pension from your years of service to the NHS. However, can I paint you a picture of reality?

    When you went to nursing college to qualify for lifetime employment with the NHS, was that all free? Did you leave with any debts? And when those pay cheques started to roll in, ok so they wouldn't have been great, but did you consider buying a house because they were affordable? I mean they were 20 years ago, even for people on lowish incomes. So assuming you own your own house, you'll retire with £9000 a year and probably be ok on that no? I could survive on a lot less minus my mammoth mortgage now.

    Life hasn't really been that bad no? You're educated, had a job for life and you've got a nice little retirement to look forward to.

    Let's roll forward 25 years to a nurse of today. Does she get free education for her nursing degree. Nope. Debt please. Oh this is because so many young people are going to college and it's unaffordable (does this argument sound familiar). No problem they've got a job for life on the NHS. Well with constant pay freezes because we can't afford any more pay rises for you. Sorry, too busy paying those older public sector pensions. Want to buy a house? Forget it. Although you can rent this nice buy-to-let which supplements the retirement income of the baby boomer enjoying their retirement (they're never around to fix the boiler, they're away in Spain most of the time).

    This is the reality for young people today and this is through no fault of their own. Your told that if you go to university, life will be good, you'll get a job, 2.4 children, house and pension just like your parents had. Incorrect. You'll leave university with a useless social sciences degree, with £15-20k worth of debt. If you're lucky enough to get a job, there's no chance it will be for life. You'll never afford a house so won't be able to fall back on the one asset we can all rely on. Don't bother getting a pension, just work until you die, because there'll be no state pension when you retire, or the retirement age will be 85. Oh and by the way, apologies for all the services such as education, science and transport we had to cut, we had to ring fence pensions and the health service because the baby boomers needed those services.

    £9k per annum not looking too bad now is it?

  • Comment number 81.

    I really really hate to say it but the pensions debacle appears to be another of those contradictions of the system.
    They just plain do not make sense.
    And where does that leave us?

    We cannot inflate ourselves out of difficulty.
    There will be trouble on the streets.
    Perhaps that is the only way forward.

    Perhaps we will agree to getting deeper into debt forever. And ever.
    It does appear to make sense as long as there are no dissenters. Ever.

  • Comment number 82.

    I am heartily sick of the continued assumption that the unfunded public sector pension liability is what is going to bankrupt the U.K.

    All government pensions including the entire state pension scheme is unfunded. NI contributions are not used to offset future liability to the state second pension, but form general revenue. What proportion is the unfunded public sector pension provision compared to the unfunded state sector?

    I have serious misgivings with RPs assumptions that the total liability should be raised rather than lowered due to the lower returns on gilts compared to AA rated corporate bonds. When calculating provision required to provide a defined benefit, there are three factors, the level of benefit, the assumed real rate of return and the risk. Yes the real rate of return is lower on gilts than corporate bonds, but the risk is much lower, so arguably the provision can be lower not higher. And where did the 60 to 70 years come from. The earliest a pension is payable is 55, and not many pensioners are making it to 125!!

    Also, as someone who actually transferred his civil service entitlement into a personal pension, there is only one true measure of the liablity. The transfer value. This is the actual amount of money the scheme would pay out into a private pension scheme to remove all future liabilty. It is a straight forward calculation based on length of qualifying service, pensionable pay and retirement age. To calculate the transfer value for the entire public sector is something that could be done quite easily, and would give a true net value of the liability, and do away with the suspect discount rate. I have a feeling it is rather less than £770bn.

    Finally, the easiest solution and one that would probably have some backing amongst the civil service unions is to raise the retirement age to match the state retirement age. To do this they would need to revoke the right to sack people at age 60 (the worst offender in age discrimination in employment is the civil service). As things stood before I transferred out, I would have to leave at age 60 with a pension of 45% of final salary, but still have to wait 6 years before the state pension made up some of the difference. Guaranteeing those additional 6 years of employment in return for 6 less years of pension is a winner.

  • Comment number 83.

    I think my point to all this is that the public sector pension scheme represents the generation who have helped themselves to a bit too much of the pie and until they accept responsibility for this, then we're all doomed.

  • Comment number 84.

    The affordability of public sector pensions is not a new problem. It has been there for many years ever since we all starting living longer. The government has not wanted to tackle it as they figured it would be another governments problem when incoming taxes were no longer sufficient to cover outgoing pension payments and did not want to risk becoming unpopular. All those votes they may lose at the next election!!! That problem could occur sooner than we think due to the demographics of the uk. The obr suggested this could be a problem as early as 2014. This has to be tackled now probably with the scheme closed from now and all new contributions to go into funded scheme like the Local Government Pension Scheme. Freeze existing entitlement and money purchase scheme from now on.

  • Comment number 85.

    # 69. At 5:18pm on 21 Jun 2010, Les2


    Astounding! Nothing changes.

    Well it may be rephrased in the vein of MP's fiddled while London burned (yet again).

  • Comment number 86.

    #84. 0, juliet50e:
    ' Freeze existing entitlement and money purchase scheme from now on. '


    Absolutely. The gravy train has hit the buffers!

  • Comment number 87.

    State Pensions, three (3) broad options:
    1) maintain the status quo;
    2) prohibit new employees from joining the schemes (what's known as closing the schemes to new members);
    3) close the schemes to contributions...
    but apparently there is a fourth and a fifth an a sixth.
    4) increase the current contributiuons of those that will be covered under the pensions plans i.e. current state employees.
    5) increase the age at which retirment pension can be drawn
    6) make person receipt dependent income from other sources. No one who is financially pretty well-off, should draw-down a state pension.
    Oddly enough I think that Ex-Labour Cabinet minister, John Hutton, will draw up plans to make the problem pay for itself. Let’s call this a 'pension contribution hike'. This “pension contribution hike” would require state employees to contribute far more NOW if they want to look forward to retirement benefits.
    Of course this deduction of “pension contribution hike” would effectively result in a pay cut for persons employed by the state. As much as I don’t like this because it is more than a salary freeze (It is tantamount to a serious salary reduction.), I can see no other alternative to keep the retirement fund afloat.
    Mr Osborne said yesterday that no Chancellor had ever inherited such appalling public finances as those left behind by Labour. Yes, Mr. Osborne, in fact they did in Greece, Spain, Portugal, etc. etc. and if you look deep enough you will find the cause” American derivative, entanlged, bundled, unregulated trading that grew like cancer in otherwise healthy economic systems and institutions.

  • Comment number 88.

    I assume the politicians astoundingly generous pensions will be the first to be cut, after all 'we are all in this together'!

  • Comment number 89.

    #84. 0, juliet50e:
    ' Freeze existing entitlement and money purchase scheme from now on. '

    Too right, more money for the financial sector crooks to steal.

  • Comment number 90.

    #87. BluesBerry

    "6) make person receipt dependent income from other sources. No one who is financially pretty well-off, should draw-down a state pension"


    I agree with most of your post but if you have paid in, you should be entitled to draw. Seems fair?

  • Comment number 91.

    So if civil service pensions, which only accumulate at between 1/60th and 1/80th of salary per year and on payment are then only linked to inflation, not to the general rise in wages, require a contribution equivalent to 30 - 40% of salary.
    What sort of pathetic pensions will the planned personel pension accounts produce when they are only taking the equivalent of 8% of salary.

  • Comment number 92.

    90. At 8:15pm on 21 Jun 2010, Toldyouitwould wrote:
    "I agree with most of your post but if you have paid in, you should be entitled to draw. Seems fair?"

    Sums up what is wrong with the entire country - I've put in therefore I'm owed so I'm taking out. me me me.

  • Comment number 93.

    This whole debate is ridiculous. The £1 trillion figure is entirely fatuous, what is the total cost of providing free womb-to-tomb healthcare for the entire UK population? Surely this is also a "future debt", shall we abolish the NHS as well?

    Let's make things perfectly clear, if you significantly degrade our pensions we WILL strike, this WILL bring down the government.

    Bare in mind that the police and the army have public sector pensions too.......

  • Comment number 94.

    LyndonApGwynfryn wrote:
    "shall we abolish the NHS as well?"

    Don't worry, that will be next (;-)

  • Comment number 95.


    I’m afraid this sensationalist take on the pension problem just won’t wash. The total liability for pay-as-you-go public sector pensions may be large and rising, but the actual annual liability for pensions in payment is less than 2 percent of GDP and it is not predicted to continue to rise even if nothing is done to make pensions less generous or employee contributions more onerous. Stephanie Flanders made a good deal more sense of the problem.

    In all the populist panic about public sector pensions, there is a risk that actions will be taken in the short-term that will do great long-term damage.

    I recall that in the 1980s there was great smugness in Britain that, unlike in most of Europe, most of British pension liabilities were fully covered by the investments of the pension funds and insurers. Indeed, so many of these private sector final salary schemes were in actuarial surplus that the employers took a contributions holiday. Then, as soon as the financial skies darkened, those same employers cried poverty, closed the final salary schemes, and pitched their employees into money purchase schemes that cost employees more and employers less, but no longer offered predictable pensions. A combination of declining investment returns, stock market turbulence and government regulations compelling pension funds to hold a large proportion of assets in low-yielding bonds then proceeded to worsen the picture.

    The real pensions scandal in this country is not public sector pensions (although some of them are much more generous than others) but the rape of private sector pensions, not by government, but by greedy employers shielding behind the demands of ‘competitiveness’ and ‘shareholder value’ whilst paying themselves such extraordinarily generous salaries and bonuses that the gap between highest and lowest paid has widened beyond anything seen in Britain in over 100 years.

  • Comment number 96.

    chazzacant wrote:
    "The real pensions scandal in this country is not public sector pensions (although some of them are much more generous than others) but the rape of private sector pensions, not by government, but by greedy employers shielding behind the demands of ‘competitiveness’ and ‘shareholder value’ whilst paying themselves such extraordinarily generous salaries and bonuses that the gap between highest and lowest paid has widened beyond anything seen in Britain in over 100 years."

    Best and most realistic comment seen on one of these boards in a very long time.

    Sadly too many people don't want to believe it...

  • Comment number 97.

    At any time, a proportion of the population is economically active producing goods or services which are consumed by everyone, including those too old or too young or too ill to work or just unable to find employment. Over the years the proportion actually needing to work to produce sufficient for everyone has declined and will continue to do so because of increased productivity, in spite of greater longevity and more time spent in education.

    As far as the real economy is concerned, the persistence of unemployment, the difficulty that the old and poorly skilled have in finding work, the need for enterprises to spend heavily on advertising to sell their goods, the feverish effort put into inventing new products, which we previously managed perfectly well without, indicate that, in general, we are trying to spend a larger proportion of our lives producing goods and services than is actually needed.

    Most discussion of the pensions "problem" ignores this reality and as a result reaches nonsensical conclusions.

    An increasingly large proportion of the value generated by todays' workers has to be used to support those not working. The best way to do this is to provide a national scheme, because this is the only way to guarantee that it would not be vulnerable to bankruptcies and the collapse of financial markets. Unfunded like most public service schemes because this cuts out the fund manager middle men, and is as a result more efficient. It would be financed like the NHS. Those working pay to support those not working through taxes etc, and in turn receive support when they have to stop working.

  • Comment number 98.

    The citizens have some idealized concept of government that does not exist. It has all be taken over by banking and big business a long time ago. They accumulated so much power that they could do anything and from their own arrogance gambled away everyones money, while collecting fees and bonuses. Politicians are simply their handmaidens left to clean up their mess. The rethoric is empty and meant to make you believe something that is not true. When the banks are assessed a large tax for their miss-deeds thing will be on the right track, until then you are watching puppets say what they are told to say. No one seems to mind that the bankers are doing very well while everyone else continues to lose more. Higher taxes to pay for funding the banks, less service to pay for funding the banks and the banks want to charge more interest as the economies fail....I don't know if the banks are simply completely detached and abusive or the politicians are so weak that they do not matter...empty suits.

  • Comment number 99.

    Only PS workers who have been employed for more then 5 years are on final salary schemes. All new entrants were moved to average and not final salary schemes which are cheaper than the final salary versions. not only that, but the bulk of civil servants under the age of 45 moved onto a higher payment version a few years ago as ell, more than doubling the amount paid in.

    I have a question for those working in the Private Sector. What would your reaction be if your employer demanded that you pay a massive increase into your pension scheme when you were being told that you were facing yet another year of pay restraint or "pay freezes". Apart from Teachers and Health sector workers who were catching up, the rest of the Public Sector has been living with under inflation pay rises for ten years. Something that you do not hear about in the media when we were in a time of plenty.

    So stop the right wing led hysteria about the Public Sector and recognise that if 300,000 PS workers are put on the dole who is going to pay the benefits, or bail out the banks when they are saddled with the mortgages these people can not pay for or how the tax revenue that will be lost will be reclaimed.

  • Comment number 100.

    The only logical response can be to require future entitlements to be earned through higher contributions as calculated by Ralfe - either higher contributions for the current rate of entitlements, or lower entitlements for the same level of contributions.

    By contrast, to close public sector pensions to new contributions or new members would have the effect of immediately increasing the government deficit by the 5-6% of public sector pay which currently gets paid back as contributions. This money would disappear into private pensions, leaving the Treasury to pick up the increased shortfall in today's payouts. The benefit to the public finances of reduced future liabilities would take years to outweigh this shortfall, whereas the deficit crisis is pressing now.

    Should the government have the nerve and callousness to do it, the increased employer contributions could be used as a way to renege on the commitment to increase health funding annually, since more of the health budget would go to pay for the current public sector pension cost.


Page 1 of 2

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.