John’s Blog 6. Pensions - Public Sector Pensions - 3

The proposals for the Public Sector Pension reform basically boil down to:-

            Reducing Benefits          Increasing Contributions                 Delaying Retirement

With the basic aim of reducing actual or the perceived future costs of the scheme

The initial report follows recent previous ones and contains similar fact distortions, with particular regard to the cost to the Tax-payer, and dire predictions of the effects of longevity.

The contribution levels are divided into Member’s and the State, represented as Tax-payer costs.

 In fact these divide into three areas, according to the State accounts (Blue Book) as:-

Employers - £7.9bn; Employees - £6.7bn; Imputed Social - £5.1bn (SERPS rebate ?)   Total - £19.7bn

 equal to contributions of   7.3%,   6.5%   and 5%,   which are at a similar level to private Sector schemes.

These contributions cannot possibly be attributed to or described as tax-payer costs.

Great emphasis is placed on making the system fairer, but do not tackle the subsidised areas of the Scheme.

These are mainly the Civil Service at a low 1.5%, now 3.5% and the armed forces who pay nothing.

Although no one would deny the serving forces this exception they should both be treated outside the scheme and their payments of £6.1bn funded by the Departments concerned, and not other’s contributions.

Payments for Teachers and NHS are £9.9bn; with police and Fire at £1.2bn, well covered by contributions!

The Pension Scheme is represented as “Gold Plated”, although this may be true for the upper management elite few, it does not apply to the majority, many of whom are close to the minimum wage.

The average wage for the major NHS is £20,900 and teachers £32,000 p.a with average pensions of £5,200  and £8,300, some 25% of wage. These are in no way generous or excessive even with the State pension

Total contributions of 18.3% of wages would give a successful Funded Scheme, with much higher pension levels and are the obvious way forward.

The draconian measures being proposed do not appear to be justified, these result more from the unfunded nature of the scheme and the bias to non-contributors and high earners. The money should be made to work harder and give better value.

The next blogs will consider the basic pension considerations and the effects of increased longevity.