Cormac Hollingsworth reveals the government’s two-faced attitude to pensions; gold-plate the private sector ones, while cutting those of the public sector.
In April 2012, the government will change how it compensates public pensioners for inflation rises, no longer paying public pensions indexed to the retail price index (RPI) but indexing versus the consumer price index (CPI) at a cost to pensioners of possibly as much as 1.4 per cent per year in lost rises.
This is one of the reasons why public sector workers are in industrial dispute. How much angrier will they be when they find out that while their indexation to the better RPI will end in April, this month the government gold plated RPI government payments to private pensioners until 2047, for another 35 years?
In the 2011 budget, the chancellor announced that the default inflation indexation for government payments would change from RPI to CPI. The reason for the change is that indexing to CPI saves the government money, and of course conversely costs money to the people receiving those payments.
The two major losers here are both pensioners: Public sector pensioners lose out, because they directly receive payments from the government; but so too do private sector pensioners. As Chart A.1 shows, this is because the only buyers of government index-linked gilts are the funds that pay private pensions. There are no other buyers.
Chart A.1:
And just like the public sector unions, the private pension funds told the government in quite clear terms that they didn’t want it to change the indexation to CPI.
But unlike the government’s stance on public pensions, on November 29th last year, the day before N30, the government’s debt agency, the DMO, announced that the government would not try to sell any CPI-linked bonds, because the private pensions funds were on a buyers strike.
But the government owns the whip-hand here.
There are literally no other sellers of bonds that will pay interest linked to inflation rates. And given the pension funds need to receive these payments from the government so they can pass them onto their pension clients, how long do you think the bond market would have held out before they capitulated and started buying CPI bonds?
Well, we shall never know.
A week ago, the private pension funds were able to buy a bond that will pay them RPI-linked payments for the next 35 years. So, while in April this year public pensioners will start getting lower pension rises linked to CPI, private pensioners have just received a guaranteed RPI-linkage for another generation.
In 35 years, that means private pensioners will be receiving 63 per cent more in their pension than public sector pensioners, all facilitated by our government, as Chart 2 shows.
A gold plated promise!
Chart 2:
As we know, of course, there is also a class element to this. The higher your income, the more likely you are to be enrolled in a pension. The data from the ONS of percentage not enrolled in a pension versus income and age are charted above.
For example, for 40-49 year olds on the lowest income 77 per cent aren’t in a pension, but for those earning above £600 per week, in the same age, over 81 per cent are in a pension.
Happily for the richest, as they reach 80, because of the deal the government did last week, they will still be receiving RPI-linked pensions. So much for “we’re all in it together.”
See also:
• Four myths about today’s strike: Busted. – Alex Hern, November 30th 2011
• Osborne proved the doommongers wrong – the economy is even worse than we predicted – George Irvin, November 30th 2011
• Public sector pensions no more gold-plated than those in private sector – Nigel Stanley, November 28th 2011
• New survey shows public more willing to take action over pensions – Neil Foster, November 21st 2011
• Report suggests cost of current public sector pension schemes is affordable – Naomi Cooke, May 27th 2011
34 Responses to “Government gold-plates private pensions while cutting public ones”
Newsbot9
You’ve used a single data point for RPI and CPI and then claim the ARTICLE is poorly researched? The average difference, historically, is far higher than 0.4%!
Newsbot9
No, the main difference is that the government is raiding public pensions at-will, making them a clear scam. There needs to be warnings put out from the appropriate bodies about this scam – it’s no different to any other form of mis-selling of pensions.
Newsbot9
“So what’s missing? Ah yes. Those private pensioners have to pay for their pensions, and they have to pay for the civil service pensions. ”
Great, just pay the public sector workers the equivalent their qualifications would gain them in the private sector then (some 80% more, on average).
…Nope, gotta oppress workers simply because of their employer. It’s not like they’re PEOPLE after all, they work for the GUBERMINT !&$!!
Keep on propping up government pension-raiding scams though, that’s your level.
Anonymous
Labour started the pension raid. Taxing private pensions.
Now they are going to ‘raid’ public sector pensions like yours.Raid in quotes because there is no fund. Its more of a default.
The raid on PS workers is the extra contributions. That’s where you are being done over.
Now those extra contributions do not change the debt one iota, because that money is being spent on other things.
So when you get to try and receive your pension, the kitty is still going to be bare.
What you need is money contribution into a fund in your name. You own the assets. That also needs a referenda lock that there is no taxation on the funds without a referenda agreeing to it.
That protects against governments taking pensions – the lot. See Argentina, Hungary for 100% examples.
You still won’t get your pension promise. No money just debt being the reason
Newsbot9
As usual, you’re completely wrong.
Thatcher started it by allowing companies to stop paying into well funded schemes, bankrupting them.
And it does nothing whatsoever about governments “taking” pensions. The worthless pensions in Argentina show that quite clearly. Moreover, there cannot be a “referendum lock” without a fundamental reform of British democracy – you’re the radical and the revolutionary trying to break the system here.
You and your 1% are responsible for killing the economy. YOU. You’re the enemy. YOU’LL be able to eat, and you don’t care about anyone else. You’re quite happy to call for starving millions for a scrap of profit.
And since you can’t read, I DO NOT HAVE A PUBLIC SECTOR PENSION.