Danny Alexander's continued spin that we need to push up public sector pensions premiums so we can afford them is a myth that doesn't stand up to scrutiny.
Chief Secretary to the Treasury, Danny Alexander, has defended the Coalition’s intentions to ask public sector workers to pay up to £3,000 per year more for their pensions this morning, on the old government line that public sector workers need to pay greater premiums so we can afford such provision in future.
The Treasury’s press release claims that the reforms:
“are designed to ensure that public service pensions remain among the very best available, while dealing with increased costs of people living longer.”
However, this is pure piffle. As Michael Burke wrote on Left Foot Forward earlier this month:
“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.”
The real reason, as Micheal Burke pointed out, for this reform, is to prime the public sector for privatisation, as set out in the terms of reference of the Hutton Report:
“…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.”
Privatisation and outsourcing of public services is a good thing or a bad thing, but that’s what we ought to be arguing about here as it’s the real issue. The ‘we have to reform because we’re all living longer and can’t afford this pensions’ is a myth that Alexander should stop indulging in. In fact, if the changes spark a withdrawal, the Treasury will lose money overall.
59 Responses to “Danny Alexander repeats the ‘big lie’ that pension reform needed to stop spiralling costs”
Clempo
Duncan,you are missing the point, are you suggesting that private sector pensioners do not use the NHS or Social care?
In answer to you comment about Brown’s first budget: if you go even further back to time to the last Tory Government, which Chancellor allowed firms to take pension holidays. That was the start of the outrageous attack on pensions and how the DC pension schemes were shafted by the Tories.
lso I can’t understand how you can call public sector pensions “Gold Plated” when you know very well they are not. My pay was reduced by 19% to pay for my Civil Service pension and after 40 years working at the coal face (as it were) my pension is only just under £1,000 a month. Hardly Gold Plated, when I could have got a lot more pay in outside industry with a final salary pension and less dangerous working conditions.
Clempo
Selohesra. Sorry I should have addressed my last to yourself. Bye the Bye, when I joined the Civil service I took a 60% pay cut. Why you ask, I thought that as a Civil Servant I could give something back to my country.
Mr Danger
“Duncan you seem to be forgetting that public sector workers do pay for the pensions and latest figures show that all of them are financially sound.”
Then privatise them, you can’t lose. Oh wait, you don’t want that do you? Because you know they aren’t fully funded by participants.
The Hutton report is quite clear on this, stating on page 9 of the summary that “present schemes involve too much risk for government and the taxpayer… There should be a fairer sharing of risk between government (and ultimately taxpayers) and scheme members than exists within the present schemes”
How odd that Left Foot Forward missed this section of the report!
Steve Trow
Danny Alexander repeats the 'big lie' that pension reform needed to stop spiralling costs: http://t.co/foNnBTA : writes @danielelton
Andy Mayer
I’m a little unclear why you keep trotting this graph out as evidence of either affordability or growing affordability. It neither addresses the point Alexander is making nor says much about whether the reforms are justified.
UK GDP today is @£1.5trillion, in 2050 it is estimated @£5trillion. 1.9% today then is around £28bn, 1.4% in 40 years time will be £70bn, a substantial increase. Both large numbers.
But even if that wasn’t the case what surely matters in respect of pensions affordability is the gap between contributions and expenditure not the overall cost, let alone the cost relative to the size of the economy? On your definition replacing Trident is perfectly ‘affordable’ as is any other form of public expenditure that consistently consumes less than the entire tax take in any year.
It is then a meaningless link, we have no idea what other calls there will be on the public purse in 2050 or what level of tax the public at the time will accept. We cannot assume their generosity.
Most public sector pension schemes are not close to being fully funded and have not been for some time. The contributions do not cover payments. The general tax payer then is expected to bail out the difference, either through higher taxes or cutting spending elsewhere. However ‘affordable’ it seems a very silly and unfair historic privilege that is entirely unnecessary and unwarranted.
Your concerns about withdrawals are noted, but seem remarkably unlikely given the proposed average salary system is still more generous than the defined contribution schemes dominant elsewhere.
Burke’s concerns about opening the door to privatisation just look weird and extreme. Since when did public ownership trump fairness as a progressive value?