Thursday, 10 March 2011

Pension plans make unions "angry"

One of my least favourite of Labour's former ministers, the ex-Barrow and Furness MP John (now Lord) Hutton, has today revealed the contents of his report into public sector pension reform.

The findings of the Hutton Report (not to be confused with the investigation into death of Dr David Kelly of the same name) include recommending linking pensions to average career earnings rather than the final salary in the case of the most generous schemes, ensuring public servants pay higher pension contributions and that the normal pension age should be linked to the state pension age.

None of these seems particularly unreasonable. In fact they have been welcomed by the likes of SAGA and the National Association of Pension Funds.

I have always believed that the earnings link is important, but linking pensions to average rather than final salaries is not necessarily unfair - so long as there is provision made to account for inflation. A link to average rather than final earnings would also benefit those public sector employees who wish to continue working as long as possible, but with reduced hours - something they'd be heavily penalised for under the current arrangements.

I'm not an expert in this field, although I have been a UNISON representative. What I do know is that the pensions deficit has not been created by the recent economic downturn: the inescapable truth is that contributions at current levels are insufficient to fund the relatively generous public sector pension schemes. Whatever the rights and wrongs of Hutton's proposals, he's assuredly correct on one point: the status quo is "not tenable in the long term".

Already the trade unions have fiercely attacked the proposals, with the FBU has contested that their members "being made to work until 60 is wrong". The same argument is being made in respect to the police service. "The public will not want an ageing frontline fire and rescue service" stated an FBU spokesperson. A fair point, but he didn't say which sections of the public he'd been consulting with in order to speak so authoritatively on their behalf or why employees should have to spend their entire careers on the frontline.

Unions are reportedly "angry" (according to The Guardian) and already seem set for industrial action even although the government has yet to respond to the proposals.

I accept (as a public sector worker) that the new arrangements would mean that public sector pensions would be less generous for many. That isn't something I want. I'm not exactly thrilled at this prospect, but the alternatives to reform could be far more devanstating in the long-term. Part of the problem is that public sector pensions have been unaffordable for so long. Something has to change. What Hutton's actually trying to do is protect the public sector - and its workers - from potential catastrophe. Whether he's going about it is the right way is another question. But the pensions deficit is already considerable and to shirk action would be irresponsible. It's also obviously unfair that public sector pensions are in general infinitely superior to those in the private sector.

I'm not going to pre-empt the government and comment in any real detail on Hutton's findings. There is a debate to be had about pensions reform and in the coming few months we will, finally, be having it. What Hutton has done is put a balanced and reasoned solution on the table (which thankfully rules out the defined contributions route) to remedy "a problem that will confront both Labour and Tory governments".

Hutton makes a point of his party affiliation, arguing that his plans represent "a decent solution. I think the values I've tried to bring to bear are good Labour values: fairness, looking after the low paid and trying to find a sensible deal for them." Maybe. But if that's true, I can only guess at the political motivations he had for not delivering such "fairness" while he was the Secretary of State for Work and Pensions.

The fact that Lord Hutton is a Labour peer will surely make the political fallout interesting, and will almost certainly be ignored by unions who wish to depict this as yet another example of "Con-Dem cuts".

Some final questions to the unions (and I ask as a fellow trade unionist): how do you propose to continue funding the status quo? Why do you feel public sector employees deserve a better deal those in the private sector? And, finally, why are you so keen to welcome independent (i.e. non-partisan) reviews yet become hostile whenever the outcome is something you don't want to hear?

Update (11th March 2011):

As a footnote, I would like to quote from Simon Jenkins, writing in today’s Guardian:

“Public sector conservatives may rush into the street and howl blue murder. They can dismiss everything that is happening as “Tory cuts”. But almost all these reforms have long been considered by governments of both parties and rejected out of political cowardice. ..

"...Gordon Brown’s debacle years at the Treasury rendered obsolete any more open-ended, undisciplined and ill-directed largesse. Critics can either join the debate or just weep into their beer for the old days...

"...12 million present and future earnings-related pensioners can not enjoy privileged treatment at the ever growing expense of the productive economy. A basic state pension is one thing, but an earnings-related one should see some equity between public and private sectors.

"[Hutton’s] report suggests that civil servants, teachers, nurses, police and others work into their late 60s and contribute more to a pension based on career average of earnings rather than final-year pay. State workers would continue getting a secure pension with an employer contribution, which is more than many people enjoy. Such reform is hardly outrageous...

"...Clearly there will be losers, but if the state cannot reform because of the fear of them, the public sector will decay into a protection racket for existing privileged groups. There is no case for hysterical reaction...

"...Ministers of all parties have known this for years...[but] no Home Secretary has dared touch it until now...what is clear is that it is impossible to calibrate reform as progressive or regressive, leftwing or rightwing, winners or losers. It is merely needed...British taxpayers are no longer prepared, even if they are able, to sustain a secure retirement lifestyle for 20-30% of the workforce which they themselves cannot hope to enjoy. They see it as simply unfair.

"Redistribution should concentrate on the poor. But pensions are just a beginning. Those who flunked [reform] for 40 years can hardly complain."

Interestingly, in relation to other European countries’ public sector pensions, Simon Jenkins observes that: “The UK pension is just 30% of average earnings, against 95% in Greece, 80% in Spain and 50% in France.”


Anonymous said...

"In fact they have been welcomed by the likes of SAGA and the National Association of Pension Funds."

This alone should be all you need to know about who wins from these proposals.

Andrew said...

I actually have very strong views on this that I'm not expressing - I'm waiting to see how the government responds first.

What I am comfortable with saying is that a) some kind of reform is overdue and b) John Hutton should have had the courage to do something positive and constructive while he was Work & Pensions secretary. The failure to have a fair and sustainable deal already on the table is his own failure, not to mention the consequence of Labour's political cowardice.

What would I like? The status quo, improved upon, with the introduction of various stimuli to bring private sector pensions in line with the public sector. Is that going to happen? No.

Questions have to be asked about how to give public sector workers the best possible deal. John Hutton has started with the premise that current arrangements are not sustainable (something evidenced by the large pensions deficit). If we accept this, there are three principal options: a) increasing employee contributions, b) increasing taxpayer contributions or c) reducing the value of the pension. Neither of these is palatable, which is why it's important to have the open and honest debate about the future of pensions that we should have had years ago.

The timing of this is could have been better though.

And yes - I'm a public sector worker. And we won't win from any proposals that ignore reality or the need for significant reform.

One final point: Hutton said that the government should not cherry-pick from his proposals, they should either implment it in full or reject it. I'm not sure how responsible that attitude is, and I would hope that over the next few months politicians of all parties will take a good hard look at his recommendations and look for ways of improving them to ensure they are as fair and forward-looking as possible.

Anonymous said...

From a U.S. website: