Thursday, July 10, 2014

On Pensions at least public sector employees don't have much to complain about.

I have no doubt that some Public Sector employees have legitimate grievances about their lot under this Government but Pensions is not one of them. Yes the Pensions deal, post Hutton, is less advatageous then hitherto. Pensions will be based on "career average" earnings rather than final salary and workers will work longer and contribute more towards their pensions. But compared with the Private sector Public Sector employees are in a still enviable position. Crucially in the run up to retirement   employees will know very accurately what their Pension will be. This is because their schemes remain Defined Benefit (DB) schemes which provide for a precisely forecastable Pension which will not be subject to the visicitudes of financial markets or to unpredictable annuity costs.

In the private sector DB schemes stll exist of course but most are closed to new entrants. For some time now the only offer to a new employee has been a so-called "Defined Contribtion" "Pension". In reaility these are not, and never have been, pension schemes at all - certainly when compared with what the Public Sector enjoys. What they are are workplace savings schemes with tax advantages. But what they produce in the way of an annual income on retirement is, compared with the DB alternative, completely unpredictable. The Chancellor acknowledged these facts when he removed the obligation to use a DC "pot" to buy an annuity in the Budget. 

To purchase an annuity producing an annual income of £20,000 a private sector employee saver aged 65 would have to have accumulated a pot of around £400,000. And yet there will be many public sector employees on such a Pension or more - guaranteed. And the contributions they will have made will be insignificant compared with the commitment necessary to save £400k - not that many will be able to do this of course. The average pot is likely to be less than a tenth of this.

The public sector rightly gets public support - we value our doctors, our nurses, our teachers and the rest. But when we look at how these workers are protected in retirement in a way that the private sector employees also used to be but no longer are?  Well in truth, in this area at least, the public sector doesn't have much to complain about does it? 


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