Nigel Stanley assess the IFS' green budget report, and finds that they are understating the effect of pension changes.
If you want a number crunched, the Institute for Fiscal Studies is the place to go. No doubt their analysis of public sector pensions published today is as rigorous as ever. But it seems that even the lofty IFS cannot resist the temptation to feed the right wing media with friendly lines to whet appetites for their green budget, published later today.
No wonder the Telegraph has splashed with:
But the only way that makes any kind of sense is by excluding two out of three of the major changes to public sector pensions pursued by this government.
Ministers have always had a three part agenda. Two of these were purely about cost saving:
• Switching the indexation of pensions in payment from the Retail Price Index (RPI) to the Consumer Price Index (CPI) measure of inflation.
Number crunchers all agree that this saves 15 per cent of the cost of public sector pensions – or to put it another way, public sector pensioners, including those already retired, will have a bit shaved off their pension each year.
Indeed the OBR now say that the gap between CPI and RPI will be 1.4 per cent in future. This may lead to that 15 per cent cut being revised upwards.
• Making public sector workers pay much higher contributions. In total they will rise by 3.2 per cent by 2015 – less for the low paid, but by a considerably higher amount for the best paid.
The third part of the reform are changes in scheme design – most of which flow from Lord Hutton’s Report. This included a range of elements, some of which were designed to reduce costs such as higher pension ages, but many, such as the move from final salary to career average, were not designed to save money but to skew public sector pensions towards the low paid.
The IFS have only considered this third element in their report today.
So to say that the government’s reform programme has made little difference to public sector pensions is clearly nonsense. Public sector staff are clearly paying much more and getting pensions that will fail to keep up with the proper measure of inflation. Whatever right-wing newspapers say public sector workers are paying more, getting less and working longer.
But that does not mean the IFS analysis is without merit.
It does show that union negotiations – bolstered by the TUC’s November 30 Day of Action – did force the government to make real concessions. The changes in the accrual rate conceded by ministers, the IFS now say, may be cost-neutral across schemes.
Higher paid staff have been hit hard, while the low paid have gained (though not enough to make up the losses caused by the other two big changes). Some will no doubt dispute that claim, and negotiations have yet to conclude in any scheme so the final shape is not yet clear. Public sector pensions have been hit hard, but as the IFS show, unions have limited some of the damage.
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• Government gold-plates private pensions while cutting public ones – Cormac Hollingsworth, January 27th 2012
• The coalition continues its ‘women problem’ by taking away our pensions – Liz Snape, 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
• Hutton repeats his big fat lie on public sector pensions – Alex Hern, November 4th 2011