Public sector pensions - work longer, pay more, says Alexander

If their pensions are to remain affordable, something's gotta give, chief secretary to the Treasury Danny Alexander tells public sector workers.

by Andrew Saunders
Last Updated: 06 Nov 2012
And the something he has in mind is twofold - the retirement age for government employees will rise from 60 to 66 years (the same as it is for those in the private sector, incidentally) from 2020, and employee contributions will have to rise by around 3%. Lower earners (£18k pa or less) will have their contributions capped at 1.5%, but those on higher salaries can expect to pay substantially more. And while pensions earned to date will be protected at their current levels, new pensions and pensions earned in future will be awarded on the basis of career average salaries, rather than on the current final salary basis.

Of course it is hardly news that public sector pensions need reform - indeed most of these proposals are based on the findings of the recent Hutton report on that very subject. The numbers are disputed, but unlike their private sector equivalents, many public sector pensions are far from fully funded. That's to say that the sums paid out are in excess of the returns provided by the money invested, and have to be topped up using funds from general taxation. In effect an iniquitous private sector subsidy for public sector pensions, as Alexander points out.

But if the case for reform is unarguable, the timing of this announcement is ruffling feathers. With over 600,000 pubic sector workers already threatening to strike on June 30th, the news that their pensions are now in the balance too is hardly likely to reduce their appetite for industrial action. Alexander has also been criticised for effectively sidelining ongoing negotiations with the unions over pensions, by announcing his intentions before the talks have concluded.
In fact the statement is likely to be taken by some union members as a thinly-veiled threat. 'A strike now might be in the interests of the union's boss, but it is not in the interests of its members," said Alexander of the latest round of low-turnout strike ballots. This is the best offer you're going to get, in other words, so take it now while it's still on the table.

It's not really much of a surprise that those public sector workers want to hang onto their pension provisions, either. The gold plated pension was after all a significant part of the deal they signed up to in the first place. But as those in the private sector already know, it's often not possible to continue to do things in the way they've always been done, however much we would like to Commercial reality dictates that when something becomes unaffordable, it has to be changed.

So this attempt at pensions reform is necessary if not exactly welcome. And Alexander seems to be firmly set on his course. 'It may be that those who oppose change think they can force the Government to change its mind. This is a colossal mistake. We will reform public service pensions. This is the time to shape that change, not to try to block it.' He said. Fighting talk.

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