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”
Anonymous
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 …
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Let me put a bit more flesh on the bones.
1. I’m in favour of compulsorary pensions savings
2. I’m against Ponzi pensions – the state. If the PS workers were a little brighter, they might work out that for them this is safer.
3. However, that money has to be safe from governments. So it needs a referenda lock in. No government can touch it without the agreement of the people who have the investment. Turkeys don’t vote for Christmas.
4. When in retirement, you go into draw down. If the money runs out, then everyone helps. But only when it happens. ie. Help is delayed to the last moment. I suggest that you can take out the state pension less any accrued state pension.
If you die early, the money goes to your heir pension funds. Wife, then children. If no heirs to the fund that pays for those who have run out.
5. Lots of money for investment, that is good for those out of work, plus companies looking for funding.
6. Restrictions on fees
7. Bans on investment decisions from government. No bailouts for banks (AIG) or British Leyland.
8. If the unions want, they can run funds. Hell they could even force their members to bail out BL if they wanted.
9. NI is diverted to the fund
Now, the guarantee is effectively worthless. A median worker (26K) who put their NI into the FTSE over the last 40 years would have a joint life RPI linked annuity of 21K a year. Instead they get 5K, CPI (worse) and not fully joint life. So the FTSE would have to perform disastrously for people to not make 5K. To be worse off, you would need to be on less than 10K pa for 40 years.
So let me ask you.
What percentage salary increase would it take to buy PS workers out of their future pensions? (not accrued).
10, 20, 30, 40, 50%?
Blarg1987
Easiest solution would be to have all employees in PLC’s to have the same pension rights terms and conditions as the CEO and the goverment to bring back the tax relieft on private sector pensions with the conditions it can only be invested in British jobs and industry so encouraging employment and brining up private sector pensions to a better condition.
Untill we stop fighting each other we are going to be shafted by whoever is in power both those on the right and those to claim to support the left.
A new left wing party should be established holding the above as a key moral principle with the goal of moral economics, higher employment and serving the majority, although some choices will be unpopular and they may not get much financial support, long term they could be very succesful 🙂
Nigel Stanley
For sure retired people pay tax on their pension. But the costs of tax relief are much higher £30b than the income from tax on pensions <£10 billion. This is partly because most people who receive tax relief as higher rate tax-payers go on to pay tax as standard rate tax-payers in retirement.
Government supporters such as CentreForum argue for the Lib Dem manifesto commitment to limit tax relief to the standard rate.
Cherry McCormack
#N30 MYTHBUSTER on @leftfootfwd: Pub sec pensions no more generous thn private sec. ps, just more of them4lower paid: http://t.co/7RoVldDv
Dean Downey
Public sector pensions no more gold-plated than private sector | Left Foot Forward. #N30 via @leftfootfwd http://t.co/uOLhhY8I