Pension Fun

November 28th, 2011

As we move towards industrial action, on the 30th November I have a feeling that there will be a sudden increase in rather distorted media coverage.One of the key things that irritates me is some of the language that is used around the principle reason for the dispute. The dispute is fundamentally about pensions and the desire of the Government to see people in the public sector work longer, pay more and receive less.

Interestingly the reasons cited for this need to change is the fact that changing demographics mean that pensions are/will shortly be unaffordable. This is odd as the received wisdom on pension reform comes from John Hutton’s pension report. His report is fairly clear that the burden of pensions is falling rather than increasing.

There is a certain logic to this. We are at the point where the post war generation are picking up their pensions, this will be followed by generations where birth rates were on the decline. This is coupled with a massive reduction in public sector employment. Taking the NHS as an example there has been a 50,000 reduction in staff over two years meaning nearly 5% of the work force has gone off the books. Add to that local authorities and the police you see a substantial reduction in the burden.

What is hidden in the Government story of pensions is the principle that it is unfair that public sector employees get pension terms that are not comparable with private sector employees. Note that it is apparently fair to change the terms and conditions of a previously agreed contract but not fair to have favourable terms to group of people you have no control over.

This is where the language begins to annoy me. You often hear terms such as “gold plated pension” and “generous pension schemes”. These terms imply that a pension is somehow a gift that is granted through the largess of the state.

This isn’t true. A pension is nothing more than an element of your pay. Some pay you receive up front as taxable income, whilst some pay comes in the form of employers pension contributions that is deferred until retirement.

We need to get away from the thinking that pensions are some sort of magic gift from the tax payer.

The fairness argument is essentially saying that public sector workers need to have their wages reduced. It doesn’t matter if you mean just the taxable element or the pension contribution, both are essentially wages.

The extrapolation of this is that nurses, teachers, social workers and care assistants are paid too much. If you are arguing for public sector contribution to pensions to be reduced this is what you are advocating. That is an entirely reasonable position to take if you believe it, but do not couch it in terms of pension reform.

This is basically the politics of envy.

We should also remember that reducing pensions has a consequence.

Pension funds are a massive source of investment for the private sector. Leaving aside the point that many funds were unduly affected by the lack of banking regulation, we need what they have left to invest in growth. Reducing the capacity for funds to do this seems naive at best.

We also have the issues we are storing up for the future. Giving pensioners enough money to live on reduces the chance that they will become a burden to health and social care in their old age. This is why improving private sector pensions is a much more pressing concern than reducing public sector pensions.

If we support people in the private sector to have investment in their future, then when it comes to means tested social care benefits more people will be supporting themselves. This is basic maths.


Posted in Media, Politics | Comments (3)

3 Responses to “Pension Fun”

  1. Phil Ruse Says:

    I completely agree with regards to pensions being a part of your overall pay package – when a pension is cut it is an ‘indirect’ cut in pay. I would make two points however: the first being that this part of people’s pay has been cut in many parts of the private sector – my own company cut it’s contributions completely for two years, and to this date has only re-instated part of their contribution. I’d expect similar changes to the public sector, well not “expect”, but you know…

    The other point is a query with regards to cutting state pensions meaning a cut to a pension fund & it’s capacity to invest etc – I was under the impression that state pensions are funded through taxes rather than any pension fund? Apologies if I’ve misunderstood this – it wouldn’t be the first time I’ve got hold of the wrong end!

  2. Daz Says:

    Hi Phil,

    Thanks for your comments. The point I make about a pension funds ability to invest is slightly spurious. The reduction in employer contributions is to be offset against an increase in employee contributions so the change in the overall fund would be marginal as a result of the changes. Public sector pension funds do still invest, the West Midlands pension fund being an example (, they need to invest money in order to allow the fund retain it’s value against inflation.

  3. Chris Seymour-Smith Says:

    Well said, Daz. I agree with everything you say here.

    And let’s consider the big picture too…

    Those of us who are parents and in our 40s and 50s will have been supporting our kids thru university and/or unemployment and/or housing well into their 20s and 30s – instead of recovering from the expensive child-rearing years and actually saving up for our old age – so we are a generation who can least afford to retire anyway

    … Then along comes increased pension contributions

    … for a lower pension!

    After working all our lives, taking responsibility for our own debts and those of our children’s, we are now facing an impoverished old age – the true cost of pension ‘reform’.

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