Strikes and pensions:the government needs to make the case about affordability

 

Yesterday’s strikes passed without huge passion or support. The Labour party did not come out for the strikers. Union leaders were split over the wisdom of the strikes. Most newspapers wrote mildly in support of the government’s approach to public sector pensions.

Some public sector employees feel strongly that their pensions should not be altered. They should understand that the government has promised to honour all  pledges made to date – there will be no attempt to take away pension entitlement already earned. The pensions issue has created a divide in the country between public and private.

A couple of decades ago the defence of the more generous index linked public pension was simple. Public sector employees on average earned less than  their private sector neighbours. They were given a better relative deal in retirement as some compensation. The funded public sector schemes were capable of paying the future pensions.

The last twenty years have seen three hugely important changes. The first was the rapid increase in public sector pay, leading to the average public sector worker now earning a little bit more than the average private sector employee. The second has been the big increase in longevity, as better diets, lifestyles and health care have enabled many more to live in to their 80s and 90s. The private sector, once the home of the final salary pension plan, was hit badly by the taxes imposed on pension plans in the 1990s, and by the poor investment returns of the noughties. Companies have in the main closed their funds to new members, many to new accruals. A significant number of funds have been closed down altogether.

As a result we now have pensions apartheid in this country. Many in the private sector think it most unfair they have to pay more tax on their lower earnings to pay for generous pension schemes in the public sector that they cannot enjoy. Some wanted the new government to do to public pensions what has been done to private sector pensions. They wanted the funds closed to new members, and maybe to new accrual as well.

Instead, the government has gone for a more moderate approach which will still leave the public sector with more generous pensions than the private. The government is proposing that indexation be switched from RPI to CPI, that the age of retirement be delayed and that public sector employees contribute more themselves for their pension provision. The details of the changes are up for negotiation.

The country cannot afford to pay for a large number of public employees to retire at 60, or even at 65, on final salary pensions indexed to the RPI. The outgoing Labour government admitted that, and a former Labour Cabinet Minister has prepared the Report on pension changes that the government is using as its text for the deal on offer.

Something has to give. If anything  governments have been   slow to raise the retirement age in line with rising expectations of longevity.The total pension liabilities of the UK state are bigger than the national debt, and do need controlling.

The  government must not concede or lose the argument about affordability. On BBC figures there will be an increase of £2.4 billion a year in the taxpayer cost of public pensions between this year and 2015-16. That means each family having to pay around £500 a year more tax to meet the bill. The accumulated capital cost of the unfunded schemes and the deficits on the funded ones now amounts to a debt of around £20,000 for every man, woman and child in the country. There has to be some limit. Let us hope both sides negotiate about what that limit should be, and then agree the best way of hitting that target with least damage to the future benefits of public sector pension recipients.

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107 Comments

  1. Posted July 1, 2011 at 7:03 am | Permalink

    You say “there will be no attempt to take away pension entitlement already earned” but surely changing the indexing method from RPI arithmetic mean to the lower CPI (calculated as a geometric mean) actually does exactly this.

    Never the less the revised scheme offered is still far too generous to the state sector and will need to be reduced again before long. The main aim though should be to reduce numbers of state sector staff actually employed at all. So many do nothing useful and many do direct harm.

    MP should however first look at their own scheme where they still get 1/40 of final salary PA for a tiny (as a % of the benefit actually received) contribution. Worth perhaps (depending on ages) perhaps £50,000 PA for a personal contribution of only £4650 after tax relief every year. This before they attack far less generous schemes in the private sector (as brown did and Osbourne has continued (with new limits and restrictions). Also before they attack general less generous state sector schemes – otherwise it just looks (as indeed it clearly is) do as I say, not as I do hypocrisy.

    • Posted July 1, 2011 at 7:15 am | Permalink

      Reported today: Iain Duncan Smith is to urge UK businesses to recruit more unemployed young Britons rather than relying on labour from abroad as reported today. (is this actually legal under the absurd UK employment laws?)

      In a speech in Spain, Iain Duncan Smith will say that if government policy has prepared young people for work, “we need businesses to give them a chance”. They might like to give them a chance if they could fire them easily if needed but they cannot under current laws.

      Has the government education system prepared many for work at all? I have seen very little evidence of this. Sort out training, employment and immigration laws do not lecture business in this absurd pathetic way please.

      • Posted July 1, 2011 at 4:48 pm | Permalink

        At the centre where I work sometimes, there is a Polish boy of 17 called Rafa. John who is the gardener and therefore beneath contempt (?) was arranging the plastic chairs outside the centre for the smokers.
        Within seconds, Rafa was there, rushing backwards and forwards helping. He did not need to be asked. The job was finished in minutes. At the end, he looked at me and said: “Job done soon, job finished.” Then he smiled in satisfaction.
        We have lots of “interns” on some government scheme of other.
        I have never seen any of them help John.

        • Posted July 1, 2011 at 8:21 pm | Permalink

          Good Soviet Citizen. The hidden middle classes if you like, Mike Stallard.

        • Posted July 1, 2011 at 8:24 pm | Permalink

          Sounds pretty typical from my experience.

        • Posted July 2, 2011 at 8:04 am | Permalink

          Mike

          It is simply the work ethic, which many families have lost here in the UK, after years of doing nothing and being paid for it.

          We now have millions of people who just think someone else will provide, someone else will do it, its nothing to do with me mate.

          Sad but I am afraid true, its what you get when kids have no working role model in the family, and can get paid for doing nothing for year, after year, after year.

          • Posted July 3, 2011 at 10:43 am | Permalink

            And who drop their rubbish everywhere, secure in the knowledge that “The Council” will pick it up.

          • Posted July 5, 2011 at 7:03 pm | Permalink

            I know. If only there was some way for the public sector to create thousands of jobs for them to do so they’d have working role models.

    • Posted July 1, 2011 at 10:28 am | Permalink

      The Conservative Manifesto promised no cutting of accrued pension entitlements. The change from RPI to CPI does, however, constitute a cut in accrued entitlements.

      I think most people, including public service workers, accept that fairness and demographic changes mean that there will have to be a significant adjustment to pensions along the lines the government and Lord Hutton propose. If the government genuinely intends to negotiate on pensions, indexation is an area where they should consider some concession. this will allow them to meet their manifesto commitment and to take the high moral ground. Otherwise they will appear duplicitous and arrogant.

      I fear that, as so often, duplicity will triumph over integrity.

    • Posted July 1, 2011 at 12:22 pm | Permalink

      Lifelogic – what is their contribution?

      • Posted July 1, 2011 at 8:33 pm | Permalink

        What MPs? 11.8% of salary (before 40% tax relief) for the 1/40 of final salary index links (which?). Is that what you mean?

    • Posted July 1, 2011 at 6:54 pm | Permalink

      It being absurd that people cannot be hired and fired at will? You seriously think this would improve the life of the average working person. Pure fantasy.

      • Posted July 1, 2011 at 8:30 pm | Permalink

        Of course it would improve everything – employers would have no disincentive to take people on and more jobs would mean plenty of choice for employees. Also people would know they had to perform to keep their jobs so industry would be able to compete and thus create yet more jobs. Simple at that.

        • Posted July 2, 2011 at 9:21 am | Permalink

          The employer can already take people on through a vast network of agencies, umbrella companies and short term contracts. Mostly set up to evade current employment legislation. Employees have little rights for the first three months anyway. I worked in a warehouse mail order job over Christmas on a short term contract direct with the company some where agency workers and some full time employees. I and the agency workers where sent home when the work load fell. To this day they sometimes phone and ask me to do a days work.
          To make the laws more lax is to erode any rights that the workforce has. Maybe if I was hit by the fork truck as the driver was not looking I should not be allowed to sue. That would also help employers and make them inclined to take more people on? Pure fantasy.

      • Posted July 2, 2011 at 12:04 pm | Permalink

        You say it is absurd but that is exactly what happens when you employ a self employed window cleaner, consultant, accountant, cleaner, taxi ……. it works very well indeed what is absurd is Cameron’s idea that when you take a taxi for an hour you have to employ them for evermore.

        • Posted July 3, 2011 at 9:25 am | Permalink

          Or the self employed apprentice scaffolder who then fell and injured himself badly. A self employed apprentice scaffolder?
          Anyway self employment is not what it is about if I where to bill my employer for labour and materials they would fall over, the rate per hour we are on is a scandal and the Limited company scheme is a scam to for employers to not pay a decent rate. Everyone self employed is just more simplistic fantasy from you.

    • Posted July 2, 2011 at 5:06 pm | Permalink

      Life Logic. You are right. I retired as a Police officer over 2 years ago having been a political football for both Tory and Labour administrations for over 30 years. I accrued 1/60th pension rights for the first 20 years and 2/60’s for the last 10 years for the final salary arrangements. There were three major pay reviews during my career that altered our pay and conditions and imposed by the Governements of the day. At the conclusion of each it was stated that on retirement the pension would rise in line with the retail price index. I paid 11% of my salary for the privilege of my pension, not an inconsiderable sum.
      The Government HAS retrospectively changed the indexation arrangements for my pension from RPI to CPI in April this year without consultation and this is currently subject to legal challenge. Lord Hutton’s own report states that this change will reduce the value of the pension from between 15-20% over its lifetime. Had I known that this would occur I would have made different financial choices around savings, investments and retirement dates.
      I don’t expect sympathy but cannot count the number of times I placed my public duty before my family or had days off and holidays cancelled to meet the needs of the service. I missed a great deal of family events due to emergencies. I therefore feel cheated by this Government. MP’s still get 1/40th accrued pension rights each year and have not altered there own pension from RPI to CPI or average salary arrangements.
      After the expenses and second homes scandals the hypocrisy makes me sick of the political class.

  2. Posted July 1, 2011 at 7:05 am | Permalink

    People often waffle on about demographics on the BBC.
    Directly relevant to the Welfare State and the Pensions is, therefore, the make-up of the population.
    Yesterday it was announced that the birth rate had doubled from just over 200,000 a year to just over 400,000 a year but that all these new people were born here.
    This worries me.
    England has gone back to pre industrial revolution levels of manufacturing and production. China is now, for instance, the workshop of the world. We are not making enough stuff any more, we are more or less out of raw materials compared to, say, Australia.
    Every word spoken on the BBC about Greece rings horribly true over here too.
    I just wonder if all these new people will be able to start off their own industrial revolution and make the country rich again.
    I also wonder exactly which religion they belong to, since it was Christianity that fired up the burst of energy which once made us great.

    • Posted July 1, 2011 at 9:24 am | Permalink

      Christianity was the predominant religion at the time but it was not what fired up the burst of energy which once made us great. Even then I suspect that the majority of nominally Christian actually believed in it.

      What fired it up was a desire to make money, control of much of the raw material in the world, coal, steel, steam, engineers, physicists, a small state, lower taxes, few if any free benefits and hard work (Cameron please note). Religion may have had its place in motivating and getting more for less out of the workers, I suppose, as it so often does throughout history.

      Jam tomorrow, post death especially, is always a good cost effective reward system.

      • Posted July 1, 2011 at 12:36 pm | Permalink

        did not believe in it I meant to say.

      • Posted July 1, 2011 at 4:53 pm | Permalink

        I am referring to the underlying philosophy of Christianity. If you believe, for instance, that the world is an illusion, or if you believe that life is a matter of keeping away from danger and difficulties unless you get zapped by an arbitrary and angry force, then you will not be taking serious risks.
        If you believe that the world is created by a logical, sensible Being and that you can understand what He is doing because your mind is like His, then – Bingo!
        Allow me to say that Christianity was not the only cause of the industrial and agricultural revolutions. But it did provide a very helpful backdrop.

  3. Posted July 1, 2011 at 7:12 am | Permalink

    Couldn’t agree more. Time to force BBC executives to contribute more too, by reducing the license fee. Or would they respond like their brothers and sisters in the NHS, by sacking front-line staff?

    • Posted July 1, 2011 at 9:29 am | Permalink

      Talking about unfair pensions just look at the BBC top brass ones. Some can be worth up to 100,000 usually poor people’s licence fees – just for one, almost certainly, lefty, arty, big state, pro EU person’s pension scheme.

  4. Posted July 1, 2011 at 7:46 am | Permalink

    1) These strikers are not happy with their lot and don’t go to work.

    What about

    a) Motorist who isn’t happy and doesn’t send paperwork to DVLA on time
    b) Parent who isn’t happy and doesn’t send child to school
    c) Taxpayer who isn’t happy and doesn’t send paperwork to HMRC on time
    d) JSA claimant who isn’t happy and doesn’t attend meeting at DWP

    All of these people would face assorted prosecutions, civil penalties or sanctions – adminstered by these strikers! Shouldn’t civil servants who can’t process paperwork or attend meetings or teach be also subject to these some penalties?

    • Posted July 5, 2011 at 7:06 pm | Permalink

      No.

  5. Posted July 1, 2011 at 7:56 am | Permalink

    My good friend is a police officer. He expects to retire at 50. The chances are that he will draw his pension for at least as long as he gave service.

    His argument is unrealistic, “I’ve been contributing a lot of money all my working life. That was the deal when I joined. It’s unfair to change it on me now.” Well join the millions in the wealth generating private sector who’ve suffered the same, friend. They are equally disappointed.

    One thing. How do we reconcile the fact that bankers have recieved tax payer backed bonuses because of contractual obligations ?

    And another. If I were a public sector worker I’d bang away about aid to India/China mercilessly.

    • Posted July 1, 2011 at 9:36 am | Permalink

      The policeman’s arguments are reasonable he just expect his contract with the state to be honoured and not cheated on. But alas all have need cheated by the state, the private sector far more so than the state sector. The fault lies with the state entering such an agreement in the first place – it was always going to have to default on it.

      • Posted July 2, 2011 at 8:39 am | Permalink

        The state (the taxypayer) didn’t expect to be supporting him for over thirty years.

        • Posted July 2, 2011 at 12:06 pm | Permalink

          The state rarely thinks beyond the next election so five year maximum then the mess is dumped on someone else.

        • Posted July 2, 2011 at 5:15 pm | Permalink

          Electro – When I joined the Police Service in 1979 the average age of death on retirement for a Police Officer was 57 years, hence the pension age. That has changed over the years due to changes in life style and shifts being less onerous. I often went from 2-10pm to be back at work by 0530hrs. This was repeated three times over a 28 day roster that included 7 night shifts in a row. Hence the early deaths.
          However the shifts did relax to become more normal over the years and life expectancy improved. However, due to cutbacks I’m told the Police Service is reverting to the old shift systems. The pension age has increasing to maximum 60 years and they pay a lot more for a lot less. On top of that the Government have just reduced their salaries for a Constalbe by an average of about £5000. With the changes in shifts I don’t see many making the 30 years you talk about.

    • Posted July 1, 2011 at 3:59 pm | Permalink

      I can’t remember the exact source but I readi hat to get the equivalent pension to a copper, a private sector employee would have to contribute something like 67% of their salary to pension contributions..

      Honestly the disparity to regular taxpayers in the private sector is staggering..

      And if you read the coppers blogs e.g. Inspector gadget, they bitch and moan about the 11% they chip in…

      • Posted July 2, 2011 at 5:21 pm | Permalink

        Do their job, get the abuse, be spat at and get assaulted repeatedly, work the shifts and the extended ones you don’t want when you are supposed to be at home for your wife or family for the “special times”, deal with the demonstration and the rocks/petrol bombs, put your life on the line a few times, deal with the dregs of society on a daily basis in our inner Cities, get called a liar by defence lawyers in the Courts, then moan about the Police. I know I’m one of those retired ones and have been there!!

        • Posted July 3, 2011 at 9:05 am | Permalink

          Tim

          The solution is for everyone to be honest,

          Pay the right rate for the job in question.

          Pay the right rate for overtime “only hours worked”

          Pay the right rate into a pension.

          Have the benefit rates for a pension outlined at the outset, be it money purchase or defined.

          Working conditions, terms and conditions of employment. pension etc, to be reviewed every 5-10years with entitlement guaranteed for what you qualified for in past years.

          The problem we have, is that because of past government policies (all parties) wage freezes, and the like, benefits like pensions, overtime and the like were used to get around the problem of wage freezes.

          In the private sector, Cars and expense accounts were allocated to people in wage freeze times for the very same reason.

          Time we got back to honest rewards, and stripped out the over inflated extras which were simply introduced to keep the headline wage cost down.

          Mps did exactly exactly the same with their pension and expense arrangements in the past.

        • Posted July 3, 2011 at 7:13 pm | Permalink

          JohnnyDubb , it was probably Neil Records book on public sector pensions “Sir Humphreys Legacy” , a very good book it is . The figure you quoted would be for a femail police officer .

          The point is also made in the book that up until about 12 years ago half of all police officers retired early due to ill health .

          Neil . I think the reason people are jealous of the police’s terms and conditions is because they are so much better than is available anywhere else .

          I wouldn’t and perhaps couldn’t do the job .

          Neil , does the level of remuneration on offer reflect the difficulty of attracting candidates of the right calibre or is it a bit on the generous side ?

          The total package that a met police constable gets before overtime exceeds what I am able to command as a self employed I.T. consultant with 22 years exceptional service .

          Unfortunately I find myself competing with global rates of reward which are several times lower than those entrenched in the UK public sector . I worked from 05:30 to 00:15 twice this week . Not much of a life but very little chance of finding anything else if these contracts should be terminated .

  6. Posted July 1, 2011 at 8:03 am | Permalink

    The majority of those working in the public sector are supporters of the Liebour party. In other words , the something-for-nothing bastards. Reminds me of a rhyme : What us a socialist ? One that has yearnings , for equal division of unequal earnings. Bungler or idler or both , he is willing , to hand out his penny and pocket your shilling. Sums up Liebour voters perfectly.

    • Posted July 1, 2011 at 6:50 pm | Permalink

      Work or starve, work until you drop. Ave nothing and be happy with it. Would be the opposite. Unless those rules apply to me.
      Would be the Tory one in my book.

  7. Posted July 1, 2011 at 8:05 am | Permalink

    John – a clear and well balanced post. One thing – wouldn’t it be a good idea to have a formal ‘Life Expectancy Index Analysis’ done (say) every 5 years which would then automatically change the retirment age (for state pension). It would be similar in principle to the ‘uprating’ process.: ie an independent, transparent analysis and woiuld give people more predictability.

    As it is, you just don’t know where you are any more – and governments could change retirement ages on a whim.

    Reply: Yes, a good idea.

    • Posted July 1, 2011 at 9:39 am | Permalink

      Yes women live years longer so should perhaps get less PA to be truly “equal” and manual workers and Northerners live less so should get more perhaps.

    • Posted July 1, 2011 at 5:12 pm | Permalink

      Isn’t this already done, in a way, with annuity tables which show the current payment you can receive given your age, situation, with and without index linking?

  8. Posted July 1, 2011 at 8:19 am | Permalink

    Whilst successive governments have allowed state pensions to get out of control and do need to get them back under control (and quickly), the population might back these efforts more readily if other obvious waste areas were tackled with equal or greater enthusiasm. You and others have highlighted many of these areas but nothing ever seems to be done. Why not? And, if no results from our leaders, why do you think that the citizens/subjects should lay back and think of England/Britain/UK/EU?

    1. Bonfire of QUANGOs
    2. Reduce EU red tape and regulations
    3. Billions for unnecessary wars in Iraq, Afganistan, Libya
    4. Billions for overseas aid
    5. Billions for the EU project
    6. Etc, etc

    Until the population sees that it is not just it that is attacked on all financial fronts by a greedy governing class, the mood in this and many countries will be ugly.

    • Posted July 1, 2011 at 2:28 pm | Permalink

      No sense of urgency to tackle the waste (perhaps as much of it ends up with friends, contacts and relatives of the powerful). Anyway not much time left before the next election is fully lost now at this rate.

      • Posted July 3, 2011 at 7:29 pm | Permalink

        You said it Lifelogic ,

        The principle has been firmly established with bailouts and waste . Now everyone wants their chunk of the public purse .

        Look at the proposals for creating desalination plants for the UK .

        Is there any rational explanation for having them other than the (public) money ending up with friends , contacts and relatives ?

  9. Posted July 1, 2011 at 8:45 am | Permalink

    As with most issues this government is once again failing to communicate effectively with the public. After having sought political cover by using the previous Labour minister to draw up the policy, Francis Maude and Danny Alexander have so far failed to convey the necessity of what Hutton proposed. We must hope that they are better at negotiating than they are at communicating to the public, but I have my doubts.

  10. Posted July 1, 2011 at 8:46 am | Permalink

    There was a spurious justification floated on TV yesterday, most surprisingly by Jeff Randall saying effectively the increase to 2015 is affordable and only a drop in the Exchequer Bucket. The point should be by then we will be about £1.5 trillion in debt – this is the unaffordable part of the argument. Just as Cameron and Co go on about cuts, there are no cuts in our national debt and any family and any business, but not Western Governments it would seem, knows one day debts have to be repaid or defaulted in some way.

    As to fairness it is laughable there is no or little trade union acknowledgment that pensions means pension pots and the pension pots of the public sector are heavily subsidised by their employer i.e. the taxpayer. I think the norm for a private business to contribute to an employee pension pot is around 5% of salary, the public sector figure is way above this. Then there is the highly unfair council tax, 25% of which goes to pay local government pensions. So you have pensioners on lowish private sector pensions subsidising those better off than themselves.

    • Posted July 1, 2011 at 11:09 am | Permalink

      Randall is right to say “the Government is on very thin ice here if it’s going to go down the affordability route.”

      What is the test for affordability? If you say that something is “unaffordable” you only mean that you are not not prepared to pay for it. Like several other concepts that feed into current debates, such as “fairness”, “fuel poverty”, and “the right thing to do”, affordability is a subjective woolly concept, simply used as a cloak to hide a lazy argument. It is not difficult to argue the case for pension reform honestly and openly.

      • Posted July 2, 2011 at 12:10 pm | Permalink

        Agree the argument is simple. It is unfair to the private sector and if it continues the private sector will not be able compete in the world and tax payments will thus decline and the pensions will not be paid anyway due to lack of tax revenues.

    • Posted July 1, 2011 at 12:56 pm | Permalink

      A.Sedgwick ,

      The norm for a private business to contribute to an employee pension pot is exactly 0% of salary .

      I’ve been working as an I.T. professionf for about 23 years for 3 companies and am now self employed .

      Have never had the opportunity of joining a company scheme .

      The private pensions I’ve contributed very heavily to from the beginning have performed so badly that now I’ve resorted to SIPP , ISA and other savings . Going to look at the Enterprise Investment Schems .

      People talk about a public sector pensions crisis but what about the elephant in the room .

      What proportion of people who are currently under 45 working in the private sector do you think will be able to retire on a pensions of £15,000/year or more ?

      I reckon we are talking single figure percentages .

      • Posted July 1, 2011 at 8:45 pm | Permalink

        Quite right to look at the Enterprise investment scheme with 30% permanent tax relief as opposed to just pension tax deferment. A good honest scheme should give you circa 70%+ return after tax and tax relief in 3 years. Not many such schemes but you can do your own with four or more investors if you are brave.

  11. Posted July 1, 2011 at 8:55 am | Permalink

    This argument is on the head of a pin, and is the resut of having so much of the population in non-free market jobs. Maybe we should just do away with defined benefit pensions altogether.

    Why not make both MP’s and public sector workers responsible for their own pensions, like the rest of us?
    Let them make their own investment decisions, like the rest of us.
    Let them worry as to whether their pension should be in cash at negative interest, stocks on the brink or ETFs, like the rest of us.
    Just pay the wage, in line with responsibility and where possible in line with the market, and let them put put to £50K per year into pension, tax-free, and take their chances out there, like the rest of us.

    • Posted July 1, 2011 at 1:03 pm | Permalink

      JimF ,

      Public sector workers should certainly be put in the same boat as the rest of us but what is needed is a solution for everybody .

      John Huttons should never have been assigned a narrow task of reviewing public sector pensions in isolation .

      He should have been assigned with coming up with a solution which everyone could participate in and which would replace existing public sector schemes .

      Defined Benefits schemes by their very nature shift risk on the the next generation so are morally wrong .

      As someone on BBC blog said , we need a Fourth Estate to deal with this as the Govt does not deal in timescales as long as a pension .

      Other countries seem to be able to get it together . Our countries mania with proberdy has not helped either .

      BTW the solution of raising retirement ages is not a proper solution .

      • Posted July 1, 2011 at 8:51 pm | Permalink

        Perhaps the government should open a scheme like MP’s one to all voters – where you put in about £5K net pa (after tax relief) and get out about £1M of pension pot after 20 years? It might be rather over popular perhaps.

      • Posted July 2, 2011 at 11:10 am | Permalink

        Opening the defined benefit public schemes to all workers- same rule (HMG making er contribution instead of private employer)- -but subject to caps on maximum pot sizes might be a solution. That may be more agreeable to the unions but not i suspect higher earners or those in exceedingly generous schemes.

  12. Posted July 1, 2011 at 9:07 am | Permalink

    You are right – the reaction to the strikes yesterday was interesting in how muted it was. As someone who works in the private sector whose main pension will be from an annuity, it is hard to see when I will be able to retire on an income remotely close to my current salary. Despite making relatively substantial additional voluntary contributions to my pension pot, investment returns are so poor and annuity rates are so low that I will have to keep working well beyond the statutory retirement age. I have sympathy if the terms of public sector workers’ pensions are changing, but the majority of employees in the private sector are on their own when it comes to pension provision beyond the basic state minimum.

    • Posted July 1, 2011 at 12:59 pm | Permalink

      Pensions in the Public sector has been a problem which successive Governments have been failing to tackle and quietly passing it onto the next administration to deal with.
      It should have been sorted out 20 years ago when private businesses realised things had to change.
      Even the changes being proposed now are not enough to solve the problems of affordability.
      The numbers of state employees has increased enormously over the last 20 years, they are being paid much higher salaries than before, they are allowed to retire too early, they are not paying enough in contributions and they are living much longer than expected.
      Final salary schemes and index linked schemes which are the norm in the public sector are seen as unaffordable in the private sector.
      How can you have, for example, Police and Fire officers retiring at 50 after 30 years service, most of whom do not actually retire, but go out and get another well paid job?
      Then there are all those who get offered “early retirement” with their pension made up as if they were at actual retirement date.
      And dont forget the superior levels of redundancy payments in the public sector which could never be afforded in private industry.
      It is easy to be generous with other peoples money and now the money is running out.
      Sorry but after 30 years in industry I am not sympathetic at all.

      • Posted July 2, 2011 at 10:01 am | Permalink

        Then there are all those who get offered “early retirement” with their pension made up as if they were at actual retirement date.

        The funded final salary schemes have been abused and pillaged. They’ve been pillaged by the recipients with union backing like in your example above, but they have also been abused by the custodians and fund managers charging big fees for a rubbish service.

        At present, a local government employee gets 20% of salary (6.5% employee / 13.5% employer) into his pension. This should be more than enough to provide a decent pension, so where has all the money gone?

        It’s been given away to people who weren’t entitled to it like you point out above. I could list numerous examples of public employees pillaging the local government pension scheme.

    • Posted July 1, 2011 at 4:04 pm | Permalink

      and lets face it, one of the biggest reasons private sector pensions are knackered was Gordon Brown’s raid (and Tory’s before him – Lamont I think)

      Yet did the unions protest the tax raid? Did they heck – they cheered, and said now you’ve got all this extra money you can afford pay rises for all the public sector – which is I think where most of Gordon’s Brown’s “increased investment” end up.

      Now that the boom has been exposed for what it was – a bubble of mythical money – the public sector wants our sympathy. Honestly you couldn’t make it up…

      • Posted July 1, 2011 at 8:55 pm | Permalink

        And Osbourne’s pension attacks too – reduced limits and restrictions. And the destruction of the economy by Blair and Brown and the EU did not help.

  13. Posted July 1, 2011 at 9:29 am | Permalink

    Private industry has a solution when it wants to change working conditions.

    It simply tells its employees that they need to re-apply for their existing jobs due to restructuring.

    Those that do, and are succesful, are given a new contract with new terms and conditions, those that do not, leave under whatever terms and conditions have been outlined in the previous contract.

    The above is a fast growing practice, which started a few years ago.

    No one should have a job and the same terms and conditions for life, otherwise we would still be paying for sedan chair manufacturing experts to sit around and wait for orders.

    Public sector workers need to get real and understand what is happening in the real world where competition rules.

    Some of our family and friends work in the NHS, the employer (taxpayer) contribution to their pension is 14% of salary, clinical staff I believe from conversations, have an additional enhanced benefit of double years entitlement after 20 years service.
    EG they pay for 20 but get 30 years or pay for 25 and get 37.
    Given that the taxpayer funds all of their wages in the first place, that they get tax allowance against their own contributions, that the taxpayer funds the employer contribution, its no wonder they want to preserve what they have got.

    Compare to someone who is self employed, pays 100% of their own money in contributions and suffers market forces. The only contribution from the state, a tax allowance on contributions made, which is now being reduced, regulation changes made frequently, and a tax on the peformance of the pension fund!.

    Public Sector, they do not know how lucky they have been so far. It has to change, the present system is simply not sustainable any longer.

    And No, I am not against the Public sector at all, we need good public sector workers to organise and run much needed services, the problem is we have far too many who are ineffective, and too expensive.

    Remember that a private/employer Pension scheme is in addition to the State pension, where the number of years contribution required for such a pension has recently been reduced to 30 years from 39 (which did not make any sort of sense to me at all at the time, giving that life expectancy was increasing).
    Talk about our politicians giving out mixed messages.

    • Posted July 3, 2011 at 8:34 pm | Permalink

      The reduction to 30 years will be for the benefit of immigrants who arrive later in life , not Mothers who decide to stay at home whilst the children grow .

  14. Posted July 1, 2011 at 10:06 am | Permalink

    I joined the civil service as an engineer about forty years ago, and I can confirm that at that time the salaries paid to engineers and technicians was significantly less than those paid to engineers in companies with which I had dealings. Pay was determined by pay reviews which took into account salaries in the private sector and it was always claimed that our salaries were lower because the “free” pension had to be taken into account.
    Subsequently, Aviation was hived off into a government authority (CAA) and we had to join a contributory pension scheme and our basic salaries rose to the general market rates. I gather that since I retired, and the privatisation of the organisation, pensions for new and some existing employees have been changed from final salary to defined benefit pensions.
    However, for those still employed directly by both National and Local Government, pensions have remained virtually unchanged, and now, far from having salaries lower than industry, many staff are earning far more than they could in outside employment. People have had to accept changes elsewhere, it is time that those in both National and Local Government employees did the same.

  15. Posted July 1, 2011 at 10:28 am | Permalink

    Government should leave pension pots completely alone taxwise ,up to a reasonable limit,
    public sector workers should be provided for EXACTLY in the same way as private sector.
    Contributions should be equal employer/employee,and be at between 5% to 10% each
    Tax deductible.
    I did a very simple exercise on my calculator ,I took someone starting at 2o on £20,000 pa,
    I assumed a contribution in total of 10% pa,this amount was put into a deposit type account
    at 5% pa interest tax free [money untouchable until retirement] the contribution increased at 10% every 5 years to allow for inflation,and to last until 65.the pension pot at 65 on just pure simple maths [no compounding monthly just annually] is £552,290 ,interest on this at only 5% again tax free is £27614 surely that is a decent amount to retire on,this pot to be invested in properly valued mortgages from inception and at least half at retirement.
    A pension of £27614 PLUS the state pension surely would make for a comfortable retirement annually. Pensions should be not touched by any govt ,as a proper pot saves the state from paying any top ups such as pension credit,surely this would save billions.

    • Posted July 1, 2011 at 9:24 pm | Permalink

      But on the assumed inflation rate that £27614 would be worth only 42% of its current value after 45 years. 10% inflation over 5 years equates to 1.9% per year and a 5% interest per year deposit account would be 3.1% over that inflation, both of which are optimistic. On the plus side wages do normally tend to rise faster than inflation and there is the prospect of promotion. I’m not sure where you get the £552,290 from. My calculations show £430K to £450K depending whether the interest is given at the start or end of the year , etc. A 5% pension on that amount would be the equivalent of around £9100 to £9600 at current value.

    • Posted July 2, 2011 at 8:16 am | Permalink

      Bernard

      Have said for many years, like you.

      Penion contributions should have no tax allowance, and pension payments should be free of tax, just a bit like investing in ISA’s.

      Its such a simple system, and it requires no government cost/overhead to administer because they are not involved.

    • Posted July 2, 2011 at 10:12 am | Permalink

      You need to deduct 1.5% pa for the pensions company, 1.5%pa for the fund of funds manager, and 1.5% pa for the individual fund managers too.

      Someone’s got to pay for their nice London townhouses and porsches.

  16. Posted July 1, 2011 at 10:30 am | Permalink

    The Govt does seem to be failing to communicate. Nevertheless, athough I agree that many public sector jobs have become over rewarded (and extrinsic motivation has crowded out intrinsic for some) compared with the private sector (and hence also have a competitive effect on labour supply, and the educational paths people choose), I still believe there are three main issues that the Govt is wrongly ignoring. [Issue 2 is simply from people I know, so the sampling is obvioulsy small and may be biased.] :-

    (1) Money saving/sustainability should not come from an indexation change. For all those who have existing entitlements (some presumably when pay was low), and also for the future, indexation should be aligned with economic growth i.e. annual change in nominal GDP (possibly per capita). The sustainability can still come from contributions and retirement age, but the stealth approach of using inappropriate indexation is simplistically unfair. [Additionally the contributions should actually go into a fund, not a black hole.]
    (2) There is a(n apparent) problem in education, at least in English schools and universities in the number of hours worked and rewards that different academic staff get. The union negotiated payscales have contributed dramatically to the unfairness. I have met some university staff on very good salaries who do little teaching/admin and have ‘hobby’ level research that is (dubiously) classed as international and so they have moved through the grades to very good salaries – meanwhile there are lower grade staff who work 60 to 80 hours a week (more than twice that which unions have officially negotiated – an unfortunate union created smokescreen) to ensure teaching&admin gets delivered. This of course varies greatly across faculties and universities (e.g. look at staff student ratios in say Business c.f. Geography in some unis). There is a similar problem in schools, but the hours taken up are hidden as they are outside the classroom and even school. Competent Govt officials should speak with competent maths teachers in schools without the best behaviour – with a little digging they would see that competent maths teachers spend hours outside of school trying to develop approaches to help the pupils learn, but once at school they have a class of pupils who are overexcited having played ‘dressing-up’ in RE and looking forward to their next ‘colouring-in’ lesson in (sad to say but again) geography. The lesson prep in the other subjects is often minimal but excites the pupils such that pupils and teacher alike gain little from the maths lesson. The low prep’ teachers of whatever subject then seek other responsibilities to move up the payscales, whilst the most important staff do not. Payscales and comparative advantage behaviour within them are problematic. Timetabling and workload shifts could help, but I would not want to see the proposed aggregte changes meaning the ‘good’ get less. If there is going to be an ‘average’ pay link then why average at an individual level? Proportionately average at a profession!
    3. W.r.t. some professions that remain ring fenced for low age retirement – police? military? Are they not capable of doing back office work? What message does this send about age and capability?

    [In the case of the academic professions one aside the Govt should look at is; why are so many teachers and lecturers in unions? I hypothesise that this is not because they want union negotiated conditions or that they are raving lefty-loonies (though all professions have some), the reason is for protection. Teachers and lecturers are often scared of pupils and students, because this is the bias of schools, education authorities and governments – the pupil/student is always right. It is only the unions that offer help and support to teachers/lecturers, so even a fan of Ayn Rand would join a union for protection in this environment!]

  17. Posted July 1, 2011 at 10:30 am | Permalink

    Down here in Cornwall, the government has just announced nearly £400,000 over the next three years to ensure the “survival” of the Cornish language. Ignoring the fact that the Cornish language vanished over 200 years ago, it just signals to me that the powers-that-be have learn’t nothing and are just carrying as usual.

    • Posted July 1, 2011 at 8:58 pm | Permalink

      The state sector is always very inventive in thinking of way to waste other peoples money.

  18. Posted July 1, 2011 at 10:58 am | Permalink

    Quoting total liability of £20k per capita makes a good headline but is meaningless to the taxpayer. What matters is the cash requirement for this and future years, to pay the entitlements of current and future employees and pensioners.

    With rapid increases in the public sector pay bill is what will do the damage in future. The NHS is enjoying an increase in “payments in” due to its expansion of about 400, ooo employees in the last few years. The “payments out” will show up in the future when that lot retires. Teachers are in a similar position.

    A female police officer; her employer and the taxpayer pay circa 70% of her salary into a virtual (IE unfunded) pension pot, so she can retire at 50/55. I can’t imagine her wanting to take on a bunch of pissed up morons when she is in her sixties either. At the age of 65, I also would be reluctant to jump into a foxhole with a back-pack and an SA80; or drag a fire hose through a burning building. Somethings society has to pay for in the common good.

    But, that leaves about six million public sector employees who are directly comparable with private sector employees. This is the case the government is not making clear so far. The poor employee, rich pensioner mantra does not play anymore for the public sector. Plus many of the members of these pension schemes are not public sector employees. A quarter of the LGPS (funded) scheme members, are not employed by local government.

    • Posted July 1, 2011 at 8:59 pm | Permalink

      They can get other jobs in old age surely.

      • Posted July 2, 2011 at 7:47 am | Permalink

        LL. Yes, they probably will but the following bothers me.

        Granddad applies for a job with a national DIY chain store, famous for employing oldies, at age 63. Grandson, age 19, never worked since leaving school, applies for same job.

        • Posted July 2, 2011 at 12:25 pm | Permalink

          Acorn

          You may find grandad has been made redundant after working most of his life, gets no benefits because he has saved a bit, has been applying for jobs for months, been constantly rejected because of his age, so with the DIY chain, at least he has a chance to provide for his family, given he is not old enough to claim his state pension.

          He may also have some knowledge which he may be able to impart on the shops customers, rather than the disinterested shrug of the shoulders you get from some assistants.

          The youngster has far more opportunities with far more employers, than anyone aged 63, if he is willing to work, and especially if they have had a part time job whilst at school or university.

          No I do not work for the chain you mention, but I am a grandad. and am 63.

        • Posted July 3, 2011 at 8:48 pm | Permalink

          Acorn ,

          You have illustrated the falacy of raising retirement ages as a “solution” to balancing the books – it quite self evidently has very limited scope (up to about age 65 in full time employment ) . It isn’t a proper solution in the real world – only on paper .

          I don’t see any alternative to people spending less of their earnings during their working life so that they have more for later . Perhaps they need to be compelled ?

          This will of course force house prices down and we will need some sort of protection to reserve it for Brits rather than rich foreigners .

    • Posted July 2, 2011 at 8:24 am | Permalink

      Acorn

      Agree with your points about older service, fire, police personel.
      The simple solution would be to employ them back of office, with all of their experience of the job, on the job, they would be surely far better than an outsider coming in.

      Likewise injured srvicemen, employ them in the Ministry of Defence, aware that logistics play a part here, but just because you get older does not mean you are incapable. Jst look at self employed builders, they work until the state retiremnet age in most cases. Why, because they have to!

      • Posted July 3, 2011 at 8:51 pm | Permalink

        Chap who built the first floor extension on the house next to me was 71 years of age .

        Absolutely lovely job he made too .

  19. Posted July 1, 2011 at 11:23 am | Permalink

    The problem I have is with the change to the usually lower CPI for people who are already receiving their pension, as well as some older workers, who probably worked in a different era when talented people sacrificed salary to work in public service.
    RPI has been used since the seventies and so we are talking about commitments which have remained unchanged for many decades until now.
    I know that the government has applied the change for public sector pensions through the statutory link to the indexation of the second state pension but the result is that old people will loose income compared to what they had expected.
    This looks and feels like theft of accrued rights to me.
    If the government helps itself to personal savings, however ‘necessary’ this act may be, then there will be extra costs down the line for ‘insurance against default’ as younger workers factor it in to future salaries.
    Some pensioners who will loose money will be receiving income based on a salary which will be far lower than equivalent jobs today becaause they will have worked for it before Labour splashed out on public sector salaries. It does seem wrong to penalise these people.
    The £8 billion saved from the change to CPI last June is a very similar sum of money to that which was sent to bail out Greece the first time round.
    I just wonder what kind of country we are going to turn in to.

  20. Posted July 1, 2011 at 11:28 am | Permalink

    Thank you for that clear explanation. It was not what I gleaned from the media yesterday. As often as not, talk seemed to be about the government case being based on “fairness” rather than on “affordability” as if there was a choice between the two. There is a choice about what is deemed fair, but surely there is no choice about affordability. The demographics demand that all pension schemes either cough up more money or default on their promised benefits. Many private sector schemes have folded or offer pensions frozen at a particular time and devaluing in the face of inflation. In the circumstances the government offer seems reasonable and more than “fair”. Whether it will be “affordable” in the fulness of time will depend on the ability of successive governments to get both the deficit and the national debt under control; at present that looks a long, long way off. If it came to the worst, it is easy to imagine that a future government could default on its pension “promises” to retired public sector employees. The strikes make no sense.

  21. Posted July 1, 2011 at 11:44 am | Permalink

    I suspect the historic difference between public and private sector average wages are largely distorted. Public sector jobs have always been sought after. Those private sector averages were raised by sectors such as banking and legal.

    When I was working as a CNC operator for an aircraft manufacturing company twenty years ago my pay was paltry and with no pension. It was high pressure work and required a fair degree of skill and knowledge about metalurgy and accurate measurement. What I’d have given to have been a council dustman or street sweeper at that time.

    I’d also been a motorcycle despatch rider in London. Along with my friends who worked in construction, we had to pay our own costs and if we didn’t work we didn’t eat. As simple as that.

  22. Posted July 1, 2011 at 11:45 am | Permalink

    A ‘We’re all in this together’ special:

    There was an interesting sidebar in this weeks Private Eye.

    Number of public sector employees whose pensions are being moved to CPI: 6.5 million
    Number of public sector employees whose pensions are staying with RPI: 650

    Answers on the back of a postcard c/o ‘the bleeding obvious department’ for who the 650 are.

  23. Posted July 1, 2011 at 12:26 pm | Permalink

    “The private sector, once the home of the final salary pension plan, was hit badly by the taxes imposed on pension plans in the 1990s, and by the poor investment returns of the noughties.”

    Private pensions are still being hit by the failure of Osborne to reverse the the tax relief on dividends. I’m sure Cameron feels justified in spending billions on donations to foreign countries and billions more for illegally attacking foreign countries, but personally I would rather have a better pension, more like that received by public sector pensioners.

    As to the poor Investment returns, I did not realise that those engaging in front-running, flash-trading, shorting, those with acknowledged market-rigging computer programs, those with their computers screwed directly into the LSE exchange computer were having poor returns. I thought they were directly appropriating my pension wealth and doing rather well at it. Does the government intend to sit idly by whilst a bunch of parasites continues to cream off the savings of hardworking people operating in the real economy, adding real value? There will never be decent pension returns if people whose activities most would regard as criminal are permitted a free licence to become very wealthy by directly expropriating the wealth of those others whose work has social value.

    • Posted July 3, 2011 at 8:54 pm | Permalink

      Hear , hear .

      No wonder they were happy to ramp up house prices they were issueing mortgages on .

  24. Posted July 1, 2011 at 12:53 pm | Permalink

    There is another angle to “The public sector were rewarded with pensions because their pay was lower.”

    “Private sector workers were rewarded more because they were fully exposed to the rigours of market forces which public sector employees couldn’t hack.”

    Anyway. It wasn’t always the case that private paid better than public – security guards employed by the Met at Westminster being an example.

  25. Posted July 1, 2011 at 1:06 pm | Permalink

    Retire at 60? I believe a number of public bodies still operate the rule of 85 whereby when the sum of an employee’s age and their years of service totals 85 they can retire on full pension. This enabled graduate employees to retire in their early fifties. Did I say retire? Many people who take this early retirement returned as contractors to do their old job at least part time often at a higher hourly rate.

  26. Posted July 1, 2011 at 1:12 pm | Permalink

    I am currently pouring as much into my personal pension as I can afford (All bonuses, any pay rise etc.) As my pot is now a decent size, recently I started to wonder, is there any protection for me if the company who is managing the pension fund goes bust? There does not seem to be any protection, is that the case?

    • Posted July 1, 2011 at 10:12 pm | Permalink

      You would be better putting it into buy-to-lets

    • Posted July 2, 2011 at 8:30 am | Permalink

      Andy.

      Not much protection, just look at Equitable Life.

      Just look at your funds performance.

      Just look at current annuity rates to check what you many get back !

    • Posted July 2, 2011 at 12:21 pm | Permalink

      Best protection is perhaps to manage it your self in a SIPP but Enterprise Investment tax reliefs are far better than pension deferment ones now and your money is not tied up for more than 3 years. But rules are a bit complex but you can set up your own one with a few friends.

  27. Posted July 1, 2011 at 3:57 pm | Permalink

    As somone who has worked in the pubic (sic – your last line) I know that most people there simply do not appreciate how generous and advantageous their pensions are. When you show them comparisons with their private counterparts, they simply see evidence of cheeseparing, greedy private employers, with no recognition of economic reality. I do deplore teachers going on strike especially when discussions are ongoing. It is a very poor example to the young. [Teacher, breaking up a fight between two little boys: “Why don’t you sit down and sort out your differences calmly.” Smart Alec little boy: “Why didn’t you?”]

  28. Posted July 1, 2011 at 5:18 pm | Permalink

    And who is it who decides what are the “comparable jobs in other industries” that civil servant’s jobs can be compared to. Why civil servants of course. And do they take into account that jobs in industry are ones you can be fired from – nope.

    However there is also jealousy within the civil service. It is well known among them that people in “environmental” jobs are consistently 2 or 3 grades higer than similar in the rest of the service. Presumably “environmental” employees will insist that this differential should be maintained, having been effectively promised to them and that they should still be allowed time off, or indeed paid time, for Luddite activism.

    To be fair to civil servants I do not think that it is that most of them are lazy (excepting the “environmental” activists of course) but that they are usually doing jobs with more diligence than the jobs merit. If most of the departments were simply abolished who would lose (well which members of the public would lose)?

  29. Posted July 1, 2011 at 5:26 pm | Permalink

    What no one ever says is that people in the private sector are allowed to have any number of jobs so long as they fulfil their various employers’ conditions. Even MPs, as long as they state them on the list of Members’ Interests, can have directorships etc. There are a number of (admittedly higher-level) public sector workers who are barred from this. It is not their fault that the goal-posts have changed. They have seen university friends make fortunes (and sometimes lose them again), but have decided not to leave, tolerating the inanity and crankiness of some of their political masters because they think they are doing a useful job. A significant part of Greece’s problems has been caused by the lack of a responsible and honest civil service. Who is going to form the next generation of UK civil servants? Not the offspring of the current one, that’s for sure.

    • Posted July 1, 2011 at 11:30 pm | Permalink

      Catherine,
      Good point, not always made by any others. Years ago when people in the private sector were making good salaries and bonuses, some of my peers would be mildly condescending in their attitude to my employment – not so much now….People make choices in their employment and those people could have chosen a public sector profession but didn’t because they didn’t fancy the money in short.
      Again, in short, a contract is a contract and should be honoured. The fact that private sector pensions have been ruined by political schemes should be taken out on politicians….particularly those with gold plate RPI pensions

      • Posted July 1, 2011 at 11:36 pm | Permalink

        No civil servants can’t take other employment either and do have to have patience (a lot of patience…). I must say that I agree with John’s point about making the argument for pension reform. If Mr Maude’s appearance on Today the other day was anything to go by they need help (He actually made Serwotka look reasonable). I have always thought that public service pensions should be capped at a sensible level of responsibility (let’s say £30,000 pa). People earning over £60,000 now should be paying an extra contribution….

        I’m afraid David Blair won’t win this argument until he stops wasting money on overseas aid, bailouts, and dubious foreign wars.

        zorro

  30. Posted July 1, 2011 at 6:12 pm | Permalink

    Mr Redwood, here is a question for you.

    How many private sector taxpayers dose it take to finance the annual salary and pension contribution for a single teacher?

    You know what they say…..make hay when the sun shines 🙂

  31. Posted July 1, 2011 at 8:30 pm | Permalink

    John,

    What I would like to see is some fairness in the pension system for those who ‘do the right thing’ and provide for themselves. There are many who have saved for a private pension who now find themselves worse off than if they hadn’t bothered. After 40 years of paying 10% of his salary into a private pension, the best my husband can expect when he retires at 65 in 6 weeks time is a pension of £6,600 p.a, half of what it should have been, and this is non-index linked which means everything will go up except his pension. Add to this his state pension and our total income is £12,000 but because we have chosen to take a very small lump sum, not for holidays of which we haven’t had one for years, and not to buy a new car although our 15year old one needs replacing, but just to have a little bit of security, we will still have to pay over £2,000 a year in council tax, 25% of which is to provide someone else with a better pension. Also, because Mr. Osborne has not raised the personal tax allowance for over 65s in line with the under 65’s,a fiscal drag on pensioners and something Gordon Brown did all the time, we even have to pay income tax. Our net income will be £9,600 per annum but had we not bothered, we would now be nearly £1,400 a year better off on pension credit with no income tax and no council tax to pay. When are the Tories going to prove they are different to Labour and reward those ‘who do the right thing’ and not penalise them?

    • Posted July 2, 2011 at 8:38 am | Permalink

      S T.

      Your points agreed with all the way.

      You are being screwed taxwise, because you can only do something about it every 5 years.

      All Benefits tax free.

      All savings, pension payments (even the state ones) taxed.

      Absoutely no incentive whatsoever to do the right thing.

      The feckless win again.

      If you have some money, they will take it.

      If you have nothing because you have spent it, they will give you more.

      It takes some believing, but it really is fact.

      • Posted July 2, 2011 at 2:40 pm | Permalink

        Live in a council house with five kids don’t work or save anything and you will be better off than someone working. Certainly more free time and when you become old the state will look after you for free. Indisputable fact and has been for decades.

  32. Posted July 1, 2011 at 11:45 pm | Permalink

    Isn’t the real problem here that the pension schemes of the public sector are Ponzi schemes, while those in the private sector are generated by investment performance?

    Would it not be reasonable for the state to withdraw from provision of pensions to its employees, and instead to have their future contributions invested in private schemes? The state can still contribute as it does generously. The schemes are then removed from the PSBR, and to some extent depoliticised.

    It might be a good idea if tax reliefs – subsidies to the financial services industry?- were removed from pensions. Perhaps the deal should be that investment income, interest and pensions receivable in respect of ones lifetime saving should be free of tax and of means testing.

    • Posted July 2, 2011 at 10:20 am | Permalink

      As a public sector employee I would love to be allowed to withdraw from the LGPS and invest my employers contribution privately, but I’m not allowed to. It’s the LGPS or nothing basically and both the unions and government want to keep it like this.

      The only way around it is to become self employed and work as a contractor. That way they save on employers NI and pension contriburions and you can pocket both of them.

  33. Posted July 2, 2011 at 3:26 am | Permalink

    Do the teachers teach the kids, that they will be working as tax slaves, for the rest of their lives, just to keep the teachers in a luxury life style, that they have no chance of obtaining ?

    Do the teachers actualy teach anything useful, I think they are just over paid babysitters.

    The last last time I interviewed any british school leavers, they seemed to have no real basic science knowledge, but seem to have been programed with this AGW rubbish.

    It could be a lot worse, you just need to look at the Americans :-

  34. Posted July 2, 2011 at 10:17 am | Permalink

    Just buy solar panels instead, feed in tariff are still RPI indexed (and very generous).

  35. Posted July 2, 2011 at 2:06 pm | Permalink

    I’ll bet the NUT members were cheering the decision to donate £0.8 billion to provide free vaccines to Africa, and £0.65 billion to Pakistan for education etc. etc.
    Surely they wouldn’t want to cut back on foreign aid just to preserve their own pensions?

  36. Posted July 3, 2011 at 1:27 am | Permalink

    “The country cannot afford to pay for a large number of public employees to retire at 60, or even at 65, on final salary pensions indexed to the RPI.”

    In Order to maintain the money supply (which consists of 97% Debt based money, created by Banks and 3% debt free money, created by the Government), Gordon Brown asked the Bank of England to create £200 Billion Pounds out of thin air and then use it to buy bad Assets from Banks.

    In 1963, the debt free component of the money supply was approximately 21%.
    It is widely accepted that the period between 1950 and 1963 allowed many people – not just the rich; to build capital.

    The reason why we cannot afford it – Mr Redwood, is because you are your accomplices (which includes the Labour Party) have promoted this idea that we must all owe our living to the Banks and must bail them out while punishing the vast majority of tax payers when the Banks fraudulantly issue mortgages that they know the borrower will never be able to repay.

    I cannot see how you have failed to realise that the Government is capable of creating money for the public benefit and not just for buying Bank assets which the Banks are more than happy to exchange for cash.

    If the Bank of England can create money (currency) for the Banks, why won’t it create it for the Public Sector Workers?

    The problem is the trend towards a virtually debt based money which means that we are now all working for the Banks. If the whole World is in debt – who is all this money owed to? And why have they been allowed this privelege of being able to charge for something that they created at press of a few keys on a computer keyboard?

    If we cannot afford to pay our own workers at home – why are we spending more money abroad in a WAR killing people in a Civil War which we have absolutely no legitimate reason being involved in?

    If we don’t ave the money – why are we giving money to the IMF and Countries like India disguised as foriegn aid, when India is involved in major weapons deals and it’s own space Program.

    Your arguments appear reasonable – when viewed in isolation from the Financial System – but this blinkered view has to change; because this method of pitting one group against another to divide and alienate the Public sector from the Private Secotr is contemptible. You have to look at the way we create money and why people are short of purchasing power despite their wages appearing to go up numerically.

    You should at least attempt to acknowledge that a return to 21% debt free money would be a good thing.

    Reply:I was the one MP who opposed bail outs of the banks at taxpayers expense

    • Posted July 4, 2011 at 12:06 am | Permalink

      Mr Redwood,

      Thank you for your reply.

      Would you be prepared to argue the case for a larger debt free component in the money supply?

      This would not be a radical departure from what we have now nor would it be a totally new money system. It would merely return our money supply structure to what it has already been – 21% Debt Free as opposed to 3% – which is what we have now.

      If house prices were not so expensive – due to the excessive targetting by Banks; of debt backed money into mortgages (a lot of them fraudulent) , Public Sector workers wouldn’t be marching in London and complaining about their Pensions as they would have enough money to invest in their own private pensions or savings. Many people are priced out of Home Ownership.

      They – like the Private Sector; are being forced into a corner – unfairly in my view. And it really does not need to be like this. We must reverse the Trend in the money supply. Fiat Money creation will be a voting issue, as money affects every aspect of our lives as a transferrable medium of exchange.

  37. Posted July 3, 2011 at 10:53 am | Permalink

    Index-linking in the public sector should go altogether, from top to bottom: only then will its employees, and most importantly the political and intellectual classes, press the government not to create inflation. For far too long they have not only not suffered from inflation but actually had an interest in it. I even heard a retiring top consultant say: “What I need now is a burst of inflation to cancel my mortgage.”

  38. Posted July 3, 2011 at 1:46 pm | Permalink

    Equitable Life made unsustainable guarantees to policy holders and went bust. I seem to remember incessant questions being made about it by the Conservatives when in opposition.

    Now they have gone quiet. I guess they can blame the Lib Dems and coalition government.

    Equitable Life policy holders are still expected to fund public sector pensions, however.

  39. Posted July 3, 2011 at 6:45 pm | Permalink

    You are partially right on this issue, many public servants agree that there needs to be some kind of reform on pensions. Having recently read that civil servants only make a contribution of 1.5% with a employer contribution of 18.9%, while judges make a contribution of 1.8% with a 32.15% employer contribution, I agree that there must be something done about this. But attacking teacher’s pensions is wrong.

    We already have a contribution rate of 6.4%, and although the employer contribution is 14.1%, any increase in the employee contribution rate would cripple passionate, young teachers, who are already having to deal with large amounts of student loan debt, overdrafts incurred whilst training and who often pay out of their own pocket to buy resources because the education funding is abysmal.

    In effect this is a tax on teachers, because we are easy targets compared to civil servants and judges. I suppose you could interpret this as jobs for the boys. Why would the Government want to increase the pensions of the two groups in the this country it works closest with.

    Funnily enough if I had a private pension, my contribution would be around 3% and my employee 6%. A ratio of 1:2, not to dissimilar to a teachers pension which has a ratio of 1:2.20. Compare that to judges (1:17.9) or civil servants (1:12.6).

    Is this the reason why the government are refusing to have an independent valuation of the Teachers Pension Fund

  40. Posted July 4, 2011 at 12:17 am | Permalink

    Debt as a percentage of GDP:

    5 Greece 142.80 2010 est. 130.2 2010 Europe
    6 Iceland 123.80 2010 est. 115.6 2010 Europe
    8 Italy 119.00 2010 est. 118.4 2010 Europe
    11 Ireland 96.20 2010 est. 93.6 2010 Europe
    14 Portugal 93.00 2010 est. 83.1 2010 Europe
    15 Germany 83.20 2010 est. 74.3 2010 Europe
    16 France 81.70 2010 est. 84.2 2010 Europe
    17 Egypt 80.50 2010 est. 74.2 2010 Africa
    21 Israel 77.30 2010 est. 76.1 2010 Asia
    22 Hungary 77.00 2011 est. 78.4 2011 Europe
    23 United Kingdom 76.50 2010 est. 76.7 2010 Europe
    25 Austria 72.30 2010 est. 70.0 2010 Europe
    32 Spain 60.10 2010 est. 64.5 2010 Europe
    36 United States 58.90[a] 2010 est. 92.7 2010 North America

    Notice that the UK National Debt is below that of Germany and France.

    Spain appears to be better off than the UK but is feared to be next on the Bail out list.

    Is National Debt as a percentage of GDP a good indicator? Is GDP – itself; a good measure of a Country’s economic soundness?

    Reply: You also need to look at unfunded pensions liabilities and guranteed bank debts to see the full indebtedness of sovereigns. This puts the UK in a worse position.

    • Posted July 4, 2011 at 1:07 pm | Permalink

      Don’t forget PF Iliabilities.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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