Thursday, 24 November 2011

Public sector pensions

Unlike many rants, this one is coming from a position of knowledge...  Next week we will see a huge strike of public sector workers who have been lied to by the unions.

In the past, public sector wages were lower than those in the private sector. A generous pension scheme offered to public sector workers was said to have compensated them for this lower income. In some ways, it made sense as the workers contributions were actually paying for those in retirement and therefore the schemes were self funding. But now, the cost of the various schemes is significant and growing dramatically. They are unjust when compared to benefits received by the taxpayers who are now funding the schemes.

Times have changed and public sector workers have wages broadly equivalent to comparable jobs in the private sector (something the unions overlook).  The big difference is that public sector workers enjoy pensions that are guaranteed and worth the equivalent of over 15% of salary per annum to fund... Private sector workers can only dream of such benefits, with most receiving around 5% of salary into a pension that has no guarantees.

The plan by the Government is for a reduction in public sector benefits, but still a very fair scheme - far better than 95% of private sector workers. Remember that the unions have negotiated wage increases for the public sector people when the rest have static wages or even reductions. Yes, the Government is asking for workers to contribute more for lower benefits - it seems unfair on the face of it, but it is not. Accrued benefits are maintained and the eventual retirement income will still be impressive and guaranteed. In addition, those on lower incomes are unlikely to see much of a difference anyway under the plans.

The fact is, if you were to construct a public sector pension scheme today, you would never consider the current terms. They are too costly and too generous. Something has to change.
I believe that the unions have misled their members to promote their power. They have provided poor information knowing that most people don't have the true facts to hand. I do not support the strikes, especially knowing that negotiations are still ongoing. I hate blackmail and I hope the unions fail.


  1. Bring back Thatcher. She could smash the Unions.

    I had to take a 10% pay cut. I work 10-15 hours per day. I fund my own pension.

    If I was in the public sector I suspect my 7am-8pm and constant blackberry watching/responding would be 9-5 with obligatory breaks and immediate overtime or time in lieu.

    They don't know how good they've got it.


  2. How mean of private-sector workers, victims of rapacious employers, to want to bring public-sector workers down to their level.

    Instead, we need a legal requirement to bring private-sector pensions and conditions up to public-sector levels.

    Paul Brownsey

  3. I work in the public sector and couldn't agree more. I hate unions and think they're totally unrealistic. I disagree with MadeInScotland though - lots of public sector workers work very hard. I work long hours and I'm constantly on the BlackBerry too. Don't believe all the stereotypes.

  4. MadeinScotland and Paul - I know plenty of people that work hard in teaching and in hospitals. They deserve their wages, that's for sure.

  5. The Feeling Inside - the idea of everyone enjoying a Final Salary pension in retirement is nice, but not realistic I'm afraid. My argument that if we were designing a pension scheme today, it wouldnt have the same terms applies to all. With longevity issues alone, to provide a guaranteed pension is just too costly. Also, the open ended liability to businesses is too risky and could end up failing over.

    The solution is to make cheap pension plans available that are more flexible than today and to make membership compulsory (though politicians are too afraid of that final point).

  6. I loath the unions. Look at the constant blackmail on the Underground. Huge salaries and benefits and the threat of blackmail hanging over the whole business.