Nigel Stanley lays out the details on the difference between public and private sector pensions, and shows that like for like, they aren’t that different.
Everyone attacking Wednesday’s TUC day of action on public sector pensions will try to get in a reference to poor private sector pensions.
And of course they are right. Pensions in the private sector have collapsed.
Yet cutting a nurse’s pension will do nothing to boost the pension of a shop-worker, and we should challenge these critics to set out exactly what they mean when they say that public sector pension provision should be more like that in the private sector.
The key facts are:
• Two in three private sector workers are not members of a workplace pension scheme;
• Private sector pension provision increases sharply with pay, while in the public sector it is much more evenly distributed;
• Two in three public sector staff earning between £100 and £200 a week are in a pension while only one in seven private sector employees in the same wage band are in a pension;
• Pension provision in the private sector varies hugely between sectors, with four in five workers in the energy sector having a pension, but only one in 16 in the hospitality sector having one;
• While senior public sector staff are in the same schemes as the rest of the employees in their sector and often pay bigger percentage contributions, top directors in the private sector (FTSE 100 directors) have pensions worth nearly £4 million on average.
To make public sector pension provision like that in the private sector we would first have to take pensions away from two in three public sector workers, concentrating on the low paid. Next we would have to take the public sector’s top earners and give them much bigger pension pots.
Making public sector pensions as unfair as those in the private sector does nothing to increase fairness.
If we compare like with like, the two sectors look very similar. Private and public sector defined benefit (DB) pension both have average employer contributions of about 15 per cent. Nearly three in ten (28.2 per cent) private sector DB schemes have employer contributions of more than 20 per cent of salary, compared to 17.9 per cent in the public sector.
Private sector defined benefit pensions have been in steep decline, but defined contribution (DC) provision has not filled the gap as the critics claim. Since 1999 DC pension coverage has only increased by just 2.5 per cent of private workers, while DB coverage has fallen by 19.1 per cent of the workforce. DC at 18 per cent of the workforce is now ahead of DB (11 per cent) but the big switch is to the unpensioned – a collapse from 48 per cent to 29 per cent.
Private sector workers should be angry not at public sector workers but at their employers and successive governments who have allowed private sector pension coverage to decline so sharply.
See also:
• Raab’s attacks on workers’ rights are – surprise – based on no evidence – Sarah Veale, November 16th 2011
• Enough is Enough: Why young people deserve a decent pension – Adele Reynolds, November 11th 2011
• Hutton repeats his big fat lie on public sector pensions – Alex Hern, November 4th 2011
• Cameron continues Gideon’s race to the bottom – Alex Hern, October 26th 2011
• Osborne dreaming of a race to the bottom – Alex Hern, October 3rd 2011
119 Responses to “Public sector pensions no more gold-plated than those in private sector”
Robin Gray
Public sector pensions no more gold-plated than private sector | Left Foot Forward. #N30 via @leftfootfwd http://t.co/uOLhhY8I
roger spackman
RT @leftfootfwd: Public sector pensions no more gold-plated than private sector http://t.co/pUFbjg44
Jon S
Public sector pensions no more gold-plated than private sector | Left Foot Forward. #N30 via @leftfootfwd http://t.co/uOLhhY8I
Nigel Stanley
A few points in reply:
1) low paid private sector workers pay far more towards the cost of subsidising private sector pensions for the high paid through tax relief. Two-thirds of the £30 billion a year spent on tax relief goes to higher rate tax payers.
2) thoughtful people on the right have a much more rounded view of why private sector pensions have been in decline. The rot started long before Gordon Brown. I don’t expect Lord Blagger to take much notice of me (and I admit it’s probably mutual), but he should look at this publication from Civitas – who I am sure would be happy to be described as a right-wing think-tank.
http://www.civitas.org.uk/press/prOnYourOwn.htm . To quote from the press release:
“Morris and Palmer argue that it is because previous governments, especially under Margaret Thatcher, quit the field and abandoned consumers to their more agile predators ….
“This failure to protect consumers was due to a dogmatic reliance of successive governments on free market principles to help pension savers get a good deal. This has involved encouraging individuals, rather than companies, to take responsibility for their own retirement savings:”
As they say free markets are fine for vegetables, but rubbish for pensions.
3) The government’s claim to be on the side of private sector workers’ pensions has taken a bit of a knock today as they are pushing auto-enrolment in smaller and medium sized companies back beyond the next election, severely straining the consensus, painfully build around the Pensions Commission Report. Perhaps Lord Blagger will join me in condemning this …
Anonymous
low paid private sector workers pay far more towards the cost of subsidising private sector pensions for the high paid through tax relief. Two-thirds of the £30 billion a year spent on tax relief goes to higher rate tax payers.
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It’s tax deferral. Those ‘rich’ as you put it, then pay lots of taxes to fund public sector pension, both when they are working, and when they are much poorer in their retirement.
Nothing like a bit of revisionism by omitting the taxation in retirement part. It’s tax deferral.
I’ve no doubt that it started before. However, Labour accelerated the change by taking money from pensions funds with its tax increases. [No tax ‘relief’]
End result, it all went tits up.
Look at the other villian. Labour supported and big time donor, Maxwell.
“This failure to protect consumers was due to a dogmatic reliance of successive governments on free market principles
I agree.
1. High fees – should have been legistalated against
2. High costs of moving funds
3. Fees up front.
What does it take to operate such a system? A government. It’s rent-seeking.
Auto-enrolement is part of the solution. However given that the points 1 to 3 above aren’t included, you would be mad to sign up unless there was additional cash. There is also one other condition that is needed. A clause in the bill that says any changes to taxation of the fund has to be confirmed by a referenda.
Otherwise a future Labour government would carry on doing what Brown did. When desperate for cash to pay civil service pensions, look around for the money. Ah its in pensions. Lets have a little wealth tax. Look at Hungary, Argentina for countries have have stolen everyone’s private pensions to pay for state debts. Look at Ireland forcing people to invest pension money in AIG.