Pensions

Posted on Thu 30 June 2011 in general

A number of public sector unions are striking today over changes to their pension arrangements. As a result Fliss has gone into London today rather than working from home, hopefully balanced out by a slightly less insane commute. Before she left for her train we listened to Mark Serwotka debating with Francis Maude on the Today programme. It was interesting listening although most of the debate seemed to be centred around the total cost as a % of GDP (see page 23 of the final Hutton report).

What didn't get rolled out to Serwotka's credit was the line that public sector workers are having their pensions slashed to pay for the bank bail outs although I've seen this argument being rolled out in many other places.

Pension reform is as inevitable as death and taxes simply because demographics change as our society moves on. People keep living longer and more are spending a greater proportion of their lifetime economically inactive. I'll still claim the 2/60ths of my final salary pension from Marconi when I eventually retire but since then all my pension arrangements have been contribution based. This means my final pension will be dependant on how much money is in the pot and how long the annuity company thinks I'll live once I finally retire. Although on the face of its not as generous as a final salary scheme it is a easier to calculate the bounds and therefor more sustainable in the long run. The alternative is for some other party to take on the liabilities for people living longer than the pension contributions made by/for them cover. In the case of private sector final salary schemes it was the companies and/or newer members of the schemes. In the public sector the liability eventually rests with the taxpayer. As a result the private sector has pretty much universally moved on from final salary pension schemes. Dealing with the long term sustainability of public sector pensions has been continually deferred until this government decided to finally grasp the political nettle.

Fundamentally each person has to be responsible for providing for their retirement. This is achieved by paying more money into the pot or getting your employer to do so. If your remuneration (salary+benefits) isn't up to the task then you can always look for an employer who is more willing to pay a premium for your skills.

I'm not saying that the Union's shouldn't be doing their best to look after their members interests. This can even include striking, although currently it seems a little premature as negotiations are still ongoing. However I suspect public sympathy for the strikers will be somewhat diminished as even after all the disruption and forced holidays workers in the public sector will still have more generous pension arrangements than their private sector compatriots could ever dream of.