The justification for the attack on public sector pensions is rapidly being unravelled, writes Michael Burke.
The justification for the attack on public sector pensions is rapidly being unravelled. The chart below has had a good airing and even made it onto the BBC’s main news programme last night.
The government has repeatedly claimed that the pension entitlements are “unaffordable”. The chart shows that – under current arrangements – the cost of pensions has already peaked at 1.9% of GDP and that they will fall to 1.4% of GDP over the next 40 years.
Ministers Francis Maude and Justine Greening have attempted to supplement this point with the claim that the costs will rise ‘as we are all living longer’. But this factor is already included in the Hutton (pdf) calculations of falling costs, as rising life expectancy is included in the calculation (clearly noted in the chart).
When pressed Ministers tend to change tack and argue that the public sector pension arrangements are unfair – because about two-thirds of the private sector now have no pension. As Mark Serwotka suggests, this is pure ‘race to the bottom’ stuff, where the benchmark for all services providing human comfort and dignity is the lowest common denominator.
The reason that so many private pension schemes have been curbed or closed is that companies were allowed to make contributions ‘holidays’ when the stock market was rising, and the pension assets collapsed a when the stock market crashed. So much for the inherently greater efficiency of the private sector.
It is also claimed that there is a need for greater ‘savings’ in terms of reduced government expenditure on public sector pensions.
But Hutton made no attempt to cost the effect on other parts of the welfare bill from a reduction in pension entitlements, nor any impact on health spending arising from greater pensioner poverty, nor on the impact on final demand in the economy from the reduction in incomes and the consequent reduction in taxation revenues that result.
Therefore all ministerial claims on this area are entirely lacking in any evidence to support them.
The real reason for the attack on public sector pensions is actually set out in the terms of reference that Hutton accepted from the government.
In the very first point of the terms of reference Hutton must have regard to:
“…the growing disparity between public service and private sector pension provision, in the context of the overall reward package – including the impact on labour market mobility between public and private sectors and pensions as a barrier to greater plurality of provision of public services.”
The ‘greater plurarity of provision of public services’ is Treasury-speak for privatisation; therefore the very first objective of the review is to ensure private firms can take over the functions of the public sector services – and that they can do so without the costly inconvenience of providing pensions.
The attack on pensions is not about affordability, fairness, efficiency or savings. It is part of the drive to lower wages and deferred wages to increase the profits of the private sector.
40 Responses to “Attack on pensions is not about affordability, fairness, efficiency or savings”
Darren Winstone
Attack on pensions is not about affordability, fairness, efficiency or savings: http://bit.ly/iw11Ha writes Michael Burke
Tony Mitchell
It was not so many years back that the private pensions sector was trying to persuade public sector workers to leave their pension schemes and take out a ‘much better’ private pension. This was eventually stopped and firms had to pay compensation for miss selling.
Paul McGlynn
RT @leftfootfwd: Attack on pensions is not about affordability, fairness, efficiency or savings http://t.co/SkJzzPl
Sue
Attack on pensions is not about affordability, fairness, efficiency or savings: http://bit.ly/iw11Ha writes Michael Burke
Allan Heron
That chart does not show the “cost” of pensions – it shows the amount of pensions estimated to be paid out in each year. It’s effectively a cash flow statement.
In a funded scheme, the aim is to make sure that the existing fund and ongoing contributions are in a position to make those payments as and when they fall due. The cost to do that will be something different from what is shown in this graph.
The chart would be a valid estimate of year on year cost if the schemes in question were unfunded and benefits had to be paid out of government spending but this is not the case for most of the schemes in question.
As such, there’s an element of comparing apples and oranges which is happening on both sides of this debate. If public service schemes should continue to be funded (which I think they should be) then the cost should be expressed as a % of earnings needed to be able to fund the payments as shown in the graph. I have no idea what this figure would be, but it would be a more accurate reflection of cost.