Pensions ‘driving a wedge’ between public and private sectors

pic: Michael Pooler

Public opinion is sharply divided over tomorrow’s public sector strike, yet the facts behind the dispute are often distorted by the media, and shrouded in myth.

The government’s case for the reforms, which will see workers contributing more from their wages, retiring later and ultimately receiving less, rests on the assumption that public sector pensions are in crisis. Their funding is unsustainable, so the argument goes, and as people live longer, this demographic burden will only increase – thereby exacerbating the budget deficit.

At face value, this account – accepted with little serious scrutiny by large sections of the media – appears to make sense.

But how true are these ‘facts’?

The Hutton Report into public sector pensions showed that even without reforms, the cost of pensions as a proportion of GDP has already passed its peak and is set to steadily decline from 1.9 per cent today, to between 1.5 to 1.2 per cent of total national output by 2060. This is the result of earlier reforms in 2007-08, which raised the retirement age to 65 for new entrants, and increased employee contributions by up to 2.5 per cent. This decreased the cost to taxpayers by £67bn over 50 years, reducing the value of pensions by a tenth.  Yet in the midst of these figures the government still refuses to define what is means by ‘affordable’ – weakening its own claim of ‘unsustainability’.

Conventional wisdom holds that pensions for those working in the public sector are ‘gold-plated’: disproportionately generous, and conferring huge benefits in comparison to the private sector equivalent. This claim is much repeated by the national press.

On inspection, the figures reveal a different picture.  In 2009/10 the mean average public sector pension was £7,000, yet the majority received less than £5,000 per year. The median value of pensions linked to salaries was £5,600.

Meanwhile civil service union PCS says that lowest-paid staff get only £4,200 – a mere £80 a week – and new civil servants can expect to receive almost a third less.

In local government this drops to £4,200, and for women – still on the sharp end of the pay scale – just £2,000. For half of all women in the NHS the annual pension was £3,500.

Clearly these are not the astronomical sums many would have us think. So why then do public sector pensions appear so ‘generous’? The simple answer is the woeful state of their private sector counterparts.

Over the years there has been a decline in the number and quality of pension schemes offered by private employers. According to research by the TUC, only two-fifths of private sector workers are in an employer-sponsored pension scheme, compared with 85 per cent in the public sector. This means that of the 23 million private sector employees in the UK, a mere 3.2 million are members of a workplace pension scheme that their employers pay in to – this number having halved since 1991.

Around a third in the private sector opt instead for a personal pension plan, which carry the risk of no retirement income.

For those on low-pay, the prospect of old age is even more grim: just one fifth of private sector workers receive £100-200 a week – compared to 70 per cent of similar earners in the public sector.  And 95 per of people with any kind of pension in the private sector have no protection against inflation, which acts as a monetary punishment slowing eroding their savings.

In the words of the Workplace Retirement Income Commission, established to look at the state of private sector pensions, workers are condemned to a “bleak old age” due to the paucity of provision.

Against this background, the highest earners in the private sector continue to stuff their own pension pots – the average FTSE executive can expect a £2.8m retirement fund, enough for around £170,000 per year.

In peddling this myth of ‘gold-plated’ public sector pensions the government has a clear strategy: to drive a wedge between those working in the private and public sectors. By doing so, they have deliberately fomented a politics of envy – replacing debate with emotive appeals, and playing on peoples’ genuine frustration and fears for their old age – whilst wheeling out that old, vague notion of ‘fairness’.

Behind this noisy clamour, there is a ringing silence surrounding the subject of pension settlements in the private sector. But punishing the public sector – who are taking an effective pay cut under the proposals – is no substitute for action on old age provisions.

The battleground over pensions is as much societal as it is industrial. With UK pensioners the fourth poorest in Europe, it is paramount that strikers convince all those affected – especially people hit directly, who bear a reasonable sense of grievance – that the action is motivated not by greed, but by the imperative to prevent a race to the bottom. Whether a real debate on a dignified and just old age settlement for all – irrespective of work sector – is to be had, depends on the foundations laid today.


  1. Richard MacDonald November 30, 2011
  2. Michael Pooler December 1, 2011

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