Why 'gold-plated pensions' are a myth

Pensions demoYesterday over 4,000 teachers lobbied MPs at Parliament over changes to their pensions. The lobby was organised jointly by all seven teaching unions. A petition with 150,000 signatures opposing the cuts was handed in. Today, more stories perpetrating the myth of 'gold-plated public sector pensions' are spreading like a rash through the mainstream media. But a look at the facts, those most inconvenient things, counters the myths.
The Government's own investigation into pensions, the Hutton Report, firmly rejected the claim that public sector pensions were 'gold-plated'. In fact, Lord Hutton found that the cost of public sector pensions was dropping by 25% already. These observations do not fit the Coalition's agenda, which is why we don't hear so much about them.

When YouGov polled 2,500 people in February this year, almost half believed average public sector pensions were over £10,000. According to TUC research, half of public sector pensions in payment are less than £5,600 a year. And in local government, half of pensioners are paid less than £3,000. More than 50% of those questioned said the average public sector pension should be £17,008.

Treasury estimates

Major changes have already been made to public sector pensions. Negotiations with the last government led to unions agreeing to reduce the value of current pension schemes by 10%, and future costs by 14%. The Treasury then estimated that changes, including reduced contributions agreed by union members, would save £1bn a year.

In June 2010, Tory chancellor George Osborne announced, without consultation, that public service pensions would be uprated according to the Consumer prices Index rather than the Retail Prices Index. This change has reduced the value of pensions by 15%.

The argument that the current cost of public pensions is unsustainable assumes all future commitments have to be paid today. This presents a completely false picture. The Hutton Commission and the National Audit Office said an accurate measure of affordability was to look at what proportion of GDP future payments would require.

The NAO found that the changes agreed in 2007/08 "are likely to reduce costs to taxpayers of the pension schemes by £67bn over 50 years, with costs stabilising at around 1% of GDP or 2% of public expenditure. This would be a significant achievement." Hutton's own projection sees future costs falling to 1.4% by 2060.

Daily Mail

Despite these inconvenient facts, the Coalition and its media supporters continue to push the myth of 'gold-plated' public sector pensions. The knots they tie themselves into would be funny if the situation were not so serious. Take this classic observation from a "source" in the Daily Mail today.

Rejecting the union charge that public sector staff would have to work, longer, pay more and get less', the "source" said most would have to "work longer, pay more and get the same or more". No sources for this assertion were given, but working longer and paying more to get the same adds up to a cut in anyone's book.

It's also quite amusing to the concern over the private sector low paid who, we are told, have a far worse deal than public sector staff. The record of the Coalition and media bosses on improving low pay speaks for itself. Should that concern translate into implementing a rise in this scandalously low private sector pay, you'll read it here first.

TUC PensionWatch

Of course, it would be wrong to say that there are no gold-plated pensions. The TUC's annual PensionWatch survey found the pension pots of top directors in the private sector would pay out an average of £300,000 a year.

And Incomes Data Services, surveying FTSE 100 firms, found that "While pension provision for board directors have remained generous, much of the workforce over the past few years have been going through a process of having the value of the payments into their scheme reduced."

IDS found FTSE 100 directors could now retire with an average pension pot of £2.8m, enabling them to buy an annuity worth more than £170,000 a year. And when cost is being discussed, this Coalition so committed to fairness and reform never mentions the £35bn a year in tax relief granted to the private pensions industry, relief which disproportionally benefits the wealthy.

All in all, the talk about gold-plated public sector pensions can be seen as little more than copper-bottomed bull.
Read Full Story Click here to comment

FROM OUR PARTNERS