Connected Research

Union policy research in the 21st century

Exploding the myths about public sector pensions

with 2 comments

The TUC has produced an important briefing for trade union members on public sector pensions.

Set against the backdrop of the increasing volume of headlines and soundbites from opposition politicians attacking pensions in the public sector, the briefing takes six commonly-held myths and seeks to set the record straight:

– MYTH: ‘The cost of public sector pensions is spiralling out of control’; REALITY: costs are set to increase somewhat (as are all pensions costs), but not by an unsustainable amount.

– MYTH ‘Savings could be made by replacing final salary (defined benefits) schemes by a defined contribution scheme; REALITY: scrapping defined benefit pensions would mean increased public spending on public sector pensions in the short and medium term.

– MYTH: ‘The discrepancy between private and public sector pensions needs to be tackled by punishing the public sector’; REALITY: we should level up pensions – not level them down

– MYTH: ‘Most public sector workers retire at 60 on two thirds of their final salary’; REALITY: the majority of workers joining public sector pension schemes will retire and claim their pension at the age of 65.

– MYTH: ‘It is unfair that public sector workers benefit from ‘gold plated’ pensions’; REALITY: the private sector is the real culprit for unfairness.

– MYTH: ‘The Private Sector props up the Public Sector’; REALITY: the UK economy depends on a thriving public sector as well as private sector.

The current race to the bottom on pensions on which the opposition is engaged is in the interests of no-one, whether public or private sector. The discrepancy which now clearly exists between public and private sector pensions provision has been caused by the flight of private sector employers from decent occupational provision. Understanding that, what we can do to support decent occupational provision and the relative costs of public sector pensions is fundamentally important in the debate about pensions over the next crucial few months. As Myth 3 so correctly points out, we should end the discrepancy by levelling up, not by levelling down.

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Written by Calvin

30/07/2009 at 10:34 am

Posted in Pensions, Politics

Tagged with ,

2 Responses

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  1. 2 facts to consider:
    1. The Pension Policy Institute calculated that the defined benefit, public sector pensions, were ‘worth’ upto 30% of salary ie the amount needed to purchase the equivalent benefit via a defined contribution scheme.
    2. Something like 57% of all jobs are in SMEs and such firms cannot afford to provide employee pensions at the level of the public sector. This major group of employees seems to be omitted when comparing public versus private sector pension provisions. Many employees in this group will not presently receive any pension contribution from their employers.
    Even when the new pension provisions kick in this will be a poor equivalent to the DB pensions of the public sector.
    What I find so extrordinary is the self interest of the unions who clearly feel no responsibility for the well being of this majority of employees. A sort of I’m alright Jack approach.

    Peter Annison

    31/07/2009 at 3:41 am

  2. Comment on the comments:

    1) 30% is an exageration. It would be closer to 20%. The average public sector pension in payment amounts to £7,000 pa and the modal figure is (that is, 50% of pensions are at or lower than) £5,000 pa. Add that to the basic state pension (payable at 65) and we are not talking about vast levels of income in retirement. Broadly, in line with the national minimum wage.

    2) Its worse than that. Fewer than 40% of ALL private sector employees have any occupational provision at all and the figure is fallin every year. It fell by 5% in the last twelve months. This isn’t an issue affecting only SMEs, although I’d expect the SME figure to be even worse. (I would argue with the notion that these employers ‘can’t afford’ pension provision – and from 2012 they will be obliged to afford minimal pension arrangements.)

    The trade union movement might manage to come across as taking an I’m alright jack attitude but that is not the reality. See a couple of very recent reports from the TUC on pensions generally. There is an absolute and urgent need for the UK as a whole to address this. We are sitting on a private sector pensions poverty time bomb. It won’t go off for maybe 15 years or more but it is ticking away. Making public sector provision equally poor is hardly an answer, and maybe not what Peter advocates, but there are many very well fed comentators proposing just that.

    Ben Marshall

    17/09/2009 at 2:00 pm


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