Government 'must grasp the nettle on public sector pensions'

Sep 26 2005 by Brian Amble Print This Article

The British government needs to grasp the nettle on public sector pension reform to stop private sector workers and tax-paying pensioners being forced to subsidise generous retirement and pension arrangements for civil servants.

Failure to reform public sector pensions and face up to the realities of longer and healthier living in the same way private companies have had to restructure their schemes will lead to an unacceptable and unfair tax burden on companies, their employees and pensioners, according to employers' group the CBI.

"Without reform, we face the spectre of a 'pensions underclass', with private sector employees and companies struggling to fund pension benefits for themselves, whilst they and even tax paying pensioners are forced to pay for a more generous and earlier retirement for government workers," said CBI director-general, Sir Digby Jones

"The 'I'm alright Jack' attitude of many public sector union officials really is showing itself. Just who is the public sector for, the people who it serves or the people who work in it? The unions' attitude to pensions reform provides an unacceptable answer."

Faced with rising scheme costs, private companies have had to reassess how they provide pensions for their staff. In total, firms have pumped an extra 25 billion into their pension schemes in the past decade over and above expected contribution rates.

On top of this, the few companies still offering final salary pensions are faced with an additional bill to support the Government's Pension Protection Fund, which is threatening to spiral well above the promised 300 million per year.

In contrast, little has been done to address public sector provision in the face of people living longer and healthier lives.

This is despite the fact that independent figures have shown that unfunded public sector pension liabilities are more than 690 billion - the equivalent to 11,500 for every person in Britain and more than half as much again as the UK's 417 billion of public sector debt.

These costs are also expected to rise by a staggering 40 per cent over the next 20 years.

And if these deficits start to force local councils, in particular, to increase taxes to extract more money from local residents - most of whom don't have a final salary pension - in order to help employees of local government who do, the effect on Labour's political support would be devastating.

"This time, the Government must face down the unions and grasp the nettle on public sector pension reform," Digby Jones added.

"It will not get away with publicly declaring its intentions for a second time and backing down at the first sign of trouble.

"Bringing the retirement age up to 65 in line with the private sector and reflecting longer active lives would be an important first step. It is hardly 'working 'til you drop'."

He also pointed out that the argument that generous pension provision compensates for low public sector wages no longer holds water, since average pay rises for public workers over the last five years have consistently been above the private sector average.

Figures from the CIPD also show that by 2004, public sector wages outstripped those in the private sector for all but the top 25 per cent of earners.

"It is totally unacceptable that private sector workers should subsidise civil servants and local authority employees in comfortable, early retirement. If firms and their workers are going to have to contribute more to pension schemes in the coming years, they cannot be hit a second time via the taxman, in order to pay for other people's more generous arrangements.

"It is time the public sector unions stopped holding the Government and the taxpayer to ransom, and got real on pensions."