Nov 2008 03

New research: Pensions tax grab costs pensioners £225 billion51

  • Pension funds have lost between £150 billion and £225 billion as a result of the pension tax grab in the 1990s.
  • Over 17,000 public sector pensioners now enjoy pension benefits worth a million pounds or more.
  • The value of the Basic State Pension is down 20% since 1950.
  • MPs and BBC staff pensions are kept secret.

With millions worried about the value of their pensions in the financial crisis, the TaxPayers’ Alliance (TPA) today publishes a detailed report investigating the harm done to private pensions by Government tax grabs, the falling value of the basic state pension and the massive benefits enjoyed by thousands of public sector workers. The pension divide between the public and private sectors is growing, as private sector workers lose out and record numbers of their public sector peers now receive pension benefits worth millions of pounds.

The serious problems suffered in the UK pensions system are found to be due to political meddling and managerial incompetence on the part of inexperienced politicians, particularly with regard to decisions made for short-term political gain that have disregarded the long term needs of the pension system. The report recommends urgent reform, including reducing the unsustainable public sector pension scheme to a more manageable level.

The full report can be read here.

Key Findings

  • Occupational pension schemes have lost between £150 and £225 billion in growth, at least, as a result of the abolition of ACT relief on pension funds in the 1990s.
  • Partly as a result, the number of active members of private sector occupational schemes has fallen by 41 per cent in the past 12 years, with an even greater fall in defined benefit scheme members. Were this trend to continue, there would be no active members of private sector occupational schemes in 12 years’ time.
  • The Basic State Pension is down 20 per cent or more from its 1950 level relative to earnings.
  • There are now over 17,000 retired public sector employees with retirement benefits worth £1 million each, while unfunded public sector pension liabilities are estimated to exceed £1 trillion, over 70 per cent of GDP.

Shockingly, some public sector organisations, including Parliament and the BBC, refused to release details of how many MP and BBC pensioners have million-pound pension benefits, despite the fact that both organisations are likely to have large numbers of extremely well-rewarded retired staff.

Terry Arthur, author of the report and a Fellow of the Institute of Actuaries, said:

“Political management of the UK pensions system has failed to provide a decent retirement income for many people and has been a painful lesson in the limitations of government. The history of the state pension system has been littered with broken promises, while it is immediately apparent that the proposed NPSS could lead to lawsuits on a massive scale. The possibility that contributions may prove to have been worthless because they end up disqualifying the individual from pension credits or other benefits is just the tip of the iceberg.”

Corin Taylor, Research Director at the TaxPayers’ Alliance, said:

“The infamous tax raid on pension funds has been a major factor in the collapse of occupational pension provision in the private sector, while gold-plated public sector pensions have remained immune from necessary changes. It is not right for taxpayers to be subsidising million pound retirement benefits for the public sector elite while seeing the value of their own pensions plummet, or in many cases not having a pension at all.”

Related Posts

  • Hugh Long

    Attention Corin Taylor
    I suspect that you have understated the cost of the loss of the standard rate tax relief to the pension funds.
    At the time that the ‘Raid’ was made in ’97 the tax raised was £5bn pa which at 3% yeild was a capital sequestration of £166bn and pensions are paid out of accumulated funds, not just income. These funds should have doubled in value by now, at say 7.5%, so that today’s value is £333bn from the raid. Hugh Long 02072670881

  • Kath

    It is not the fault of public sector workers that Gordon Brown “raided” private pension schemes. Most public sector workers – nurses, teachers, police, forces staff – are on modest earnings and their pensions are modest. The cost of their pensions has been reduced with entrants having a retirement age of 65 and thousands of civil service jobs being cut. Apart from the “raid”, private sector pensions have reduced because of changes to accountancy rules, lower investment returns and companies wanting to save money. Slashing the pensions of nurses etc will not increase the value of pensions paid by private employers or pension companies. It may not save much in taxes as salaries paid to nurses etc would need to increase to attract and retain staff and lower pensions received on retirement could increase benefits eg pension credit paid to them.

  • Tom P

    Just at first glance see this from page 5 -
    “Most public sector schemes still have a pension age of 60″
    Actually the big public sector schemes (NHS, education, civil service) now have a pension age of 65 for new entrants. You can find this information with a simple Google search, or by consulting some genuinely informed commentary.
    From the Pensions Policy Institute:
    “The Government announced reform of the public sector pension schemes in 2002. Most contentiously, the final set of reforms include an increase in the Normal Pension Age (NPA) from 60 to 65 for new entrants to the NHS, Civil Service and Teachers’ schemes. Existing members of the schemes have retained an NPA of 60.”
    http://www.pensionspolicyinstitute.org.uk/uploadeddocuments/PPI_public_sector_pensions_16_Oct_2008.pdf
    So either the TPA research is simply poor, or they deliberately conflate the NPA of current and future members, and ignore the fact that NPA is 65 for new entrants.

  • Steve Robson

    The TPA remember have no interest in facts, just propaganda. Facts they’d rather ignore:
    The “raid” also affected funded public sector schemes, like the local government scheme, so their linking of the raid with so called gold plated public sector schemes is nonsense (but good propaganda).
    The FUNDED local government scheme now has a retirement age of 65 for all employees, including those who started CONTRIBUTING 20+ years ago on the basis of retirement at 60.
    In any case, how can they argue that people shouldn’t get a pension that they have contributed to, just because they think everyone in the public sector is useless (unlike their mates in the banks and other examples of effective private sector organisations).
    There is however no doubt that it is tragic that that lots of people in the private and public sectors will get smaller pensions, primarily because the TPA’s mates in the oh so efficient private sector have failed to invest the money effectively (that’s propaganda by me by the way – unlike the TPA I recognise that I’m stretching the truth!). However, attacking public sector pensions that people have earned is not the answer – isn’t that levelling down and the politics of envy that the TPA decry.

  • Darren

    I think that if you apply the maths to this to this issue you can see why public sector pensions need to be reformed urgently, and should directly affect people who are already claiming theie pensions, and not just the new entrants to the scheme.
    Example: If someone retired before 2006, and achieved a salery of 60K per year (Not out of the realms of possibility, when you see the director of parks and gardens being advertised at 68k per year!). They have worked all their life from the age of 16, meaning that they could invoke the 85 year rule at just 51 years old (51 + 34 years in the job). This was known as the 85 year rule, where if the number of years worked plus your age is greater than 85, you are allowed to retire.
    Now this person would have a pension of 40K per year, index linked for the rest of their life.
    If this person lives to 100 years old, then their pension will be paid out for 49 years, even though they only worked for 35. Thst equates to a pay out excluding 1.96 million pounds (excluding the inflation linked aspect)
    My solution:
    The two thirds index linked component of the pension is only ever paid for 10 years after retirment. This will give the retiree the ability to finish paying the mortage, have a few good holidays, and get their finances in order. After the 10 years they revert to 25% of salery, because at the moment, unless they have a serious spending problem, most of the money is just going to stack up in the bank ready to pay out to the ungrateful offspring.
    Something has to be done, otherwise all of the available resources will be given to a load of people who have never had to face the harsh reality of the real world job market!

  • Steve Robson

    That proposal would certainly make for an interesting European Court case. Its one thing to take away future benefits, quite another to take away those already earned, contributed to and contractual. Still I suppose public sector workers aren’t human so they have no human rights, after all they haven’t been in the real job market. they’ve just done useless jobs like running parks, which add no value to people’s lives.
    By the way stupid, the 85 year rule has now gone and could never be “invoked” without employer permission plus your example is ridiculously extreme so all in all its wrong on three counts.

  • Peter Phillips

    Tom P says:
    “… Actually the big public sector schemes (NHS, education, civil service) now have a pension age of 65 for new entrants. You can find this information with a simple Google search …”
    Well why should it only apply to new entrants? That’s unfair to the new entrants. It effectively means they are earning a lower salary for doing the same work alongside their older colleagues.
    Steve Robson says:
    “… attacking public sector pensions that people have earned is not the answer…”
    But they haven’t earned it, not all of it anyway. Local government schemes will once again become underfunded as the value of equities fall, as they did in the early 2000s. And what did local government do then? Why, make good the deficit by increasing council taxes and taking out their pension whack before distributing what’s left for the (declining) public services. And they’ll do it again. You see.
    Steve Robson goes on to say:
    “… The funded local government scheme now has a retirement age of 65 for ALL employees….”
    I’m glad to learn that. But added to the still unfair scheme compared to private sector workers, is the spectacular salary increases that have been awarded to senior staff over recent years. Not infrequently they have enjoyed sudden 30% increases when their job descriptions were changed as a result of reorganisations. And who organised the re-organisations and recommended the new pay scales to gullible councillors? Why senior officers of course, who justified them on the grounds that they are the ‘going rates’ that are necessary to attract and retain the best staff. But these jobs are rarely advertised outside local government circles, nor are they genuinely open to people from the private sector. And everyone knows that those who have been in the public sector for more than a few years wouldn’t survive for five minutes in the private sector, so this mythical ‘going rate’ is just that – a myth. These gross salaries require urgent and substantial reassessment, downwards.
    As a compromise, all the public sector schemes should at least perhaps be changed to AVERAGE salary schemes from the final ones they are now, and perhaps on a sliding scale so that lower paid workers aren’t unreasonably disadvantaged. And it should apply to all staff, both new and existing. They would all still be better off than those in the private sector because they would still have some measure of protection from falling equities.
    Nothing less than measures such as these, or those suggested by ‘Darren’, above, will achieve the sort of savings that are needed to stop the unfairness of present public sector pensions compared to the private sector, and from the public finances spiralling into complete chaos in the coming years.
    Finally, we learn that hundreds of thousands of public sector workers are going to go on strike for more pay, at a time when less fortunate private sector workers are being laid off in increasing numbers. Well, let’s make enduring these strikes worthwhile, by instigating much needed reforms of their pension schemes at the same time as resisting these unjustifiable and unaffordable pay demands.

  • mr w grist

    I suggest you get your facts right when moaning about public sector workers pensions. this pension is not gold plated, not free. and the retirement age is from 60 years on I have been a member for 25 years and have paid in to my pension an estimated £30,000. I have no doubt that your members have been grateful at some time in the past that there are people like myself who work in the public sector for less than we could earn in the private sector

  • Peter Phillips

    mr w grist says:
    “… this pension is not gold plated,..”
    It is, or to be more correct, they all are (because there are different schemes for different public sector workers), because they are all protected from the vagaries of equity values on which all the funds are based – at least those that are nominally funded, and not all are.
    mr w grist continues:
    “… I have been a member for 25 years and have paid in to my pension an estimated £30,000 …”
    I’m no pensions expert but I believe a couple of years ago that would have bought you about a £2,000 a year pension on a private sector scheme, yes that’s £2,000 not £20,000, and probably a lot less now. I bet mr w grist will get a lot more than that after 25 years in the public sector!
    And mr grist adds:
    “…there are people like myself who work in the public sector for less than we could earn in the private sector.”
    If that is the case then it is time it was changed, pay was equalised and so were pensions. Where is the real evidence that this is true though? Nevertheless we would at least then have transparency and, probably more importantly, we might have much needed greater movement of people, particularly senior people, between the public and private sectors. At the moment public sector pensions are like golden handcuffs keeping local government and the civil service isolated and insular from the real world outside.

  • Steve Robson

    It is a shame that Peter Phillips more reasonable comments are spoit by his stupid, ill informed and typically prejudicial view that everyone knows that those who have been ibn the public sector for more than a few years wouldn’t survive five minutes in the private sector. I know many who have.
    In fact its the other way round that the problem usually arises. At senior management levels, private sector people don’t survive long because they can’t deal with the political complexities and apparantly sometimes also because they cannot cope with the frequent evening meetings, poor dears.
    The main reason however is that people who deal with equivalent jobs (budget, staff numbers etc) are paid four or five times more in the private sector, so just wouldn’t move to the public sector and most of those who do are either very inexperienced or useless private sector rejects. Of course you will deny the pay gap, but its obvious if you for example compare the Accounts of a company turning over £1billion and a London Borough for example. Of course you’ll also come up with that old chestnut about the need to keep customers and higher risks in the private sector, but people with open minds and half a brain realise the complexity is as much, if not more in the public sector and that there is actually lots of people who lose their jobs at senior levels in local government too (and without million pound plus payoffs). The fact that the right wing people who post to this website can’t grasp that complexity is probably why they would fail horribly in senior public sector jobs.
    Anyway today is a great day for progressive politics, so I shan’t spoil it by spending it arguing with reactionaries!! We won, you lost!!!!!

  • Peter Phillips

    When Steve Robinson says:
    “… today is a great day for progressive politics, so I shan’t spoil it by spending it arguing with reactionaries!! We won, you lost!!!!!”
    that just about sums up the substance, what there was of it, of Mr Robinson’s arguments, and only goes to demonstrate the isolation of many of those in local government, of which I presume he is one.

  • Steve Robson

    I suppose that is an easier answer than actually addressing the substance that you presumably don’t understand.
    Why do I get involved with all the bitter, twisted Daily Mail readers on this site. I just hope when you people have finished there are some public services left to provide you with health care, educate your children, provide roads etc. I just wish you’d listen.
    I don’t feel very isolated. America has just elected its most liberal ever President with over 52% of the vote and I believe from polling evidence (a word you don’t understand) that he’d have got 80% of a vote in this country. I somehow doubt he’d join the TPA!

  • mr w grist

    I joined the armed services from leaving school, served 11 years. on leaving the forces i tried working in the private sector, but found employers were only ever interested in the god profit, and were quite willing to cut every corner often at the expence of the customer, but, always to the cost of the employee to gain money, so i decided to work for the NHS a good employer who worked for the good of its user. i admit the terms and conditions are good although the pay is far less than in private industry. what really annoys me is those who think all public employees are scroungers who prefer public service to “real work” and who will be given vast sums of money when they retire at a very early age.

  • Low paid Public Employee

    Steve Robson,
    What a bitter and twisted boring person you are, get a job rather than spreading your bile on here.
    Extremist Muslims kill in the name of religion by choosing the parts that suit their twisted personal beliefs, time to look in the mirror.
    Private pensions are in a state because private companies dont give a hoot about their employees, its all about the people at the top and their share options, bonuses, health cover etc etc etc.
    Dont think too many private sector de-regulated bankers were bothered about public sector pensions when they were destroying the country for four, five, six figure bonuses, now thats what you call gold plated isn’t it?
    If its so good in the public sector stop crying, act like an adult and apply for a job. The retirement age has been raised as you wished which should give you time to build a nice nest egg of at least 2/3 an average salary less tax till pop your clogs.

  • mr w grist

    well said, low paid public employee

  • Steve Robson

    I’m a bit unclear whose side low paid public employee and Mr W Grist are on as they seem to be attacking me for supporting the public sector and public sector pensions.
    Does that mean you are actually TPA supporters who work in the public sector. Its very confusing.
    I have a job thanks, and a pension. And what have Muslims got to do with anything. Are the TPA against them too?

  • Call me Dave

    The highly respected IEA did a research paper on the true cost of public sector pensions. Makes for enlightening reading and I would urge those with limited understanding of the challenge we face to read it.
    The following are examples of what percentage of salary ANNUALY a private sector employee would have to invest into a money purchase scheme (or defined contribution scheme – same thing) in order to amass the same pension for any given defined benefit (or “final salary”) scheme, which as we know over 90% of the public sector enjoy compared to only 15% of the private sector.
    Civil servants contribute 3.5% of salary but the actual cost is 42.35% (60th’s final salary accrual rate)
    NHS contribute 6% but true cost is 31.8%.
    Police contribute 11% (must feel hard done by!!) but true annual cost is 76.1% of salary.
    The plight of private sector employed prison officers is also a very interesting comparison. He is paid approx £5k per annum less than his public sector colleague who does EXACTLY the SAME JOB. The public sector prison officer can also look forward to a gauranteed generous pension based on his final salary. His private sector counterpart WILL retire on means tested benefits (unless he can afford to set aside around 40% of his salary and live under a park bench)
    Those trying to defend the status quo only demonstrate their ignorance of the subject.

  • Call me Dave

    http://www.iea.org.uk/record.jsp?ID=99&type=release
    Above is the link to the facts. Download the pdf and the info your looking for is tabled on page 44.
    It is no coincidence that Labour are planning to boost backbenchers salary by £13,700 to serve on regional quangos. Many have accrued 20+ years pensionable service and are fully aware they will be forced to “retire” at the next election holding what were normally “safe” seats. Serving for a year or so on a quango will funnily enough also boost their pension by circa £7k – index linked of course!!
    Good news is David Cameron has already commited himself to ending the ludicrous MP’s final salary pension arrangement. A prerequisite to wider public sector reform.

  • Call me Dave

    David Cameronsays;
    ” I think that if MPs want to look other state sector employees in the eye, and say we really do need to look at and reform pension arrangements to make them affordable, we have to look at our own arrangements and recognise that a very generous final salary scheme going into the future is not appropriate.”
    http://www.ipe.com/news/MP_seeks_closure_on_pensions_apartheid__26690.php

  • Steve Robson

    easy to say when your as rich as “Dave Cameron”.

  • Call me Dave

    Steve, quote your own words whilst looking in your mirror;
    “I suppose that is an easier answer than actually addressing the substance that you presumably don’t understand.”
    Couldn’t agree with you more Steve. Or try repeating another well thought out phrase of yours;
    “What a bitter and twisted boring person you are, get a job rather than spreading your bile on here.”
    or indeed the one I consider most appropriate in your particular case;
    “The TPA remember have no interest in facts, just propaganda. Facts they’d rather ignore”
    The only problem with that quote as if it isn’t obvious to everyone else is your own willingness to ignore the facts not the TPA. Educated thinkers cannot have a meaningful debate with individuals who ignore the facts.
    The fact is the public sector pension arrangements are socially divisive and are already creating a 2 teir society. Any attempt at defending the status quo is as I said earlier indicative of ones ignorance on the subject – not to mention futile. In the process one will only make a fool of oneself. But feel free, in for a penny…..

  • Steve Robson

    if you look more carefully you’ll see the second quote wasn’t mine, but some lunatic called “Low Paid Public Employee”, who was attacking me despite us being on the same side. He hadn’t read what I said and appeared to think I was against the public sector for some reason. In his case, the withdrawal of public sector pensions is probably therefore justified.
    That was humour by the way. Often in short supply on this site – is that a Tory thing?
    I don’t disagree that public sector pensions need reform, though mainly because of longevity, not Gordon Brown. I just defend the rights that people have built to date. People in the public sector have traditionally been paid less and the Pension is a benefit that makes up for that. We now need a compromise that is more affordable, but contrary to what you all think many public employees are really low paid (care workers, refuse collectors teaching assistants etc) and don’t actually get much pension in terms of real hard cash. And even the highest paid public employees earn next to nothing compared to the top people in the private sector. Bob Diamond earns £26million pa for Gods sake. Thats a lot even if he is worth it to Barclays.
    In this context, my jibe at Mr C was actually addressing the substance because it is easy for him to say. He very clearly is not a typical public sector worker, nor even a typical MP, but a rich bloke. I’m quite happy to acknowledge that some of his wealth is due to his talent (he’s certainly doing a better job as Tory leader than his three predecessors), but he still is far from typical.
    Do note that I’ve been civil to you (if not to Low Paid bloke who was pretty horrible to me despite us being on the same side).

  • mr w grist

    maybe all public sector employees,like me, should work for minimum wage no paid holidays and give up our pensions. then perhaps those jealous persons who worked in the private sector for wages far above we have ever enjoyed will be happy

  • Peter Phillips

    When Steve Robson says:
    … contrary to what you all think, many public employees are really low paid…
    and mr grist says:
    … those jealous persons who worked in the private sector for wages far above we have ever enjoyed…
    it demonstrates two myths – that public sector workers are low paid and private sector workers are highly paid. The truth is there are very highly paid and very lowly paid people in both sectors. That the pay gap in Britain is unacceptably wider than most western economies except for the USA, particularly successful ones like Germany and Japan, ought to be a major issue, but it is still separate from the pension issue because low wage for low wage or high salary for high salary the public sector have unaffordable final salary pensions which by and large the private sector doesn’t. And yet the private sector contributes to the former through taxation. That is what is indefensible and which, in the rapidly worsening economic climate in Britain (which I believe is going to be severe and long term), is unaffordable.
    And while we’re having a go at senior public sector executives needing to be paid exceptionally high salaries to (supposedly) compete with the private sector, many senior executives in the private sector a grossly overpaid, and, like ex chief constable Ian Blair, often outrageously compensated for failure! That this is still happening indicates just how much of a pre-collapse fantasy we are still living in in Britain at the moment. In the greedy debt-ridden excess of the last 10 years no doubt they could get away with it – but we simply can’t afford it any more. A change in business law is needed to give much more power to shareholders to put a stop to this often destructive excess.

  • Peter Phillips

    When Steve Robson says:
    … contrary to what you all think, many public employees are really low paid…
    and mr grist says:
    … those jealous persons who worked in the private sector for wages far above we have ever enjoyed…
    it demonstrates two myths – that public sector workers are low paid and private sector workers are highly paid. The truth is there are very highly paid and very lowly paid people in both sectors. That the pay gap in Britain is unacceptably wider than most western economies except for the USA, particularly successful ones like Germany and Japan, ought to be a major issue, but it is still separate from the pension issue because low wage for low wage or high salary for high salary the public sector have unaffordable final salary pensions which by and large the private sector doesn’t. And yet the private sector contributes to the former through taxation. That is what is indefensible and which, in the rapidly worsening economic climate in Britain (which I believe is going to be severe and long term), is unaffordable.
    And while we’re having a go at senior public sector executives needing to be paid exceptionally high salaries to (supposedly) compete with the private sector, many senior executives in the private sector a grossly overpaid, and, like ex chief constable Ian Blair, often outrageously compensated for failure! That this is still happening indicates just how much of a pre-collapse fantasy we are still living in in Britain at the moment. In the greedy debt-ridden excess of the last 10 years no doubt they could get away with it – but we simply can’t afford it any more. A change in business law is needed to give much more power to shareholders to put a stop to this often destructive excess.

  • Steve Robson

    I think you’ll find that Ian Blair was compensated for a politically motivated sacking rather than for failure. The TPA has failed to notice (or pretends not to)that top public sector jobs as well as being higher paid are much more insecure than they used to be. It is the case in any sector that if you sack people without good reason you have to compensate them. This happens even were failure is clearcut (relegated football managers, chief executives of failing banks), it will certainly happen where the failure is subjective. Whatever good happens in the public sector, the TPA will call it failure, crime has fallen, fear of crime has risen, therefore its called failure, but its not clearcut.
    I agree with you there’s a culture od excess, but you really need to look at where it really is. Not Ian Blair or any TPA targets. The Head of Barclays earned £26million lasy year, can anyone really be worth that (and I say that as a shareholder whose shares have declined 75%).

  • Call me Dave

    Steve, many thanks for the courteous reply, I do appreciate it and withdraw any implied criticism.
    We need to appreciate it is no longer the case that public sector employees are paid less than those in the private sector. I conceed that historically this was the case but we are where we are today. Median pay in the public sector has now moved ahead that of the private sector. Looking at the IEA research not only is the public sector worker paid more but the true value of his final salary pension scheme means his salary is actually worth an additional circa 40% over and above that of his private sector counterpart.
    Private sector companies have recognised that the final salary based pension arrangement is no longer affordable due not only to the longevity issue you refer to but also Gordons tax raid on pension funds announced at his first budget.
    It is the unfunded nature of the public sector schemes which are clouding the affordability question. Public sector pensions are paid for out of tax receipts. If the government were to account for pension provision in the same way as companies the “black hole” in funding would make the banking sector bail out look like loose change. (public sector pension liabilities exceed £1 Trillion (£1,000 billion)
    It is not morally acceptable to me that 90% of public sector employees can look forward to a financially advantaged retirement at the expense of all tax payers public and private alike, whilst only 15% of private sector workers enjoy the same arrangement.
    For the benefit of readers I too enjoy the benefits of a final salary based pension arrangement. Some may be bewildered as to my comments but my personal standards and beliefs ensure I will not tolerate discrimination even if it does mean I may “loose out” myself. But the loss is merely financial. You cannot put a price on compromising ones sense of right and wrong in the persuit of personal gain. Some seem to manage that though with “gay abandon”……….
    MP’s have a habit of compromising their beliefs in the persuit of personal gain. Take the shining example of the motion to improve their own final salary accrual rate from 50th’s to 40th’s.
    http://www.publicwhip.org.uk/division.php?date=2001-07-05&number=14
    Despite advisors informing the house of the collapse of final salary pensions in the private sector our MP’s voted themselves an improvement to their own arrangements which mere mortals can only dream of. Always worth pointing out that the only party to vote unanimously for “more gravy please” was the SNP led by one Alex Salmond. Needless to say the motion was carried by majority.
    In the small print any shortfall in the MP’s pension fund was to be met by “the exchequer”. In other words the tax payer and true to form a few million had to be added 2 years later in 2003;
    http://news.bbc.co.uk/1/hi/uk_politics/2884069.stm
    We were hit again for another few million quid in 2006, think it was £170m.
    This for a handful of MP’s at Westminster.
    This is a huge issue and whilst I would love to debate the size of the elephants tusks or indeed the composition of it’s droppings we cannot avoid the elephant itself. I do not wish my beautiful grandchild to pay for public sector excess and greed – and neither should any of you.

  • http://www.google.co.uk/ Tom P

    “Well why should it only apply to new entrants? That’s unfair to the new entrants. It effectively means they are earning a lower salary for doing the same work alongside their older colleagues.”
    It is difficult (in any scheme) to get a change in the retirement age for current members, that’s why so few private sector schemes have done it. In fact many private sector schemes still have an NRA of 60.
    BTW most directors of the UK’s big companies have an NRA of 60, and many of them get accrual rates of 1/30ths – the most generous anywhere in the UK (yes even better than the MPs’ scheme). They aren’t even vaguely performance related yet no-one makes any noise about this, which leads me on to….
    “A change in business law is needed to give much more power to shareholders to put a stop to this often destructive excess.”
    ‘shareholders’ (by which we really mean fund managers to be clear) have proven to be pretty useless on executive pay. not a single bank has lost the vote on its remuneration report, yet now we all say rem policy was part of the problem.
    the idea that fund managers will do this job properly is not supported by recent evidence.

  • http://www.google.co.uk/ Tom P

    “Private sector companies have recognised that the final salary based pension arrangement is no longer affordable due not only to the longevity issue you refer to but also Gordons tax raid on pension funds announced at his first budget.”
    Companies certainly don’t like the risk of DB, but that doesn’t make it unaffordable. The problem with the TPA ‘analysis’ of pensions is that it starts with the answers and works back. Private sector abandons DB, therefore DB in the public sector is bad – but where’s the analysis of the pros and cons of DB and DC as a pensions system? It simply isn’t there, because they aren’t actually interested. Attacking the public sector is the objective, not thinking about pensions.
    Personally I think the wholesale shift to DC is a major mistake in pension policy that will come back and bite us. But all the TPA do is repeat the blah that what the private does is best.
    PS. The idea that the abolition of ACT credits caused the death of final salary schemes is popular on the unthinking Right, but not accurate. Stephen Yeo, who aacted as pension adviser to the Tories, said it isn’t even in the top 3 causes.

  • Call me Dave

    state employees pay NI at 9.4% instead of 11%, thereby boosting their take-home pay.
    Furthermore, they can take part of their state pension at 60, whereas most other employees have to wait until they are at least 65.
    Pensions expert Dr Ros Altmann said: “It is all a complete nonsense and an absolute scandal. This is just another unfair subsidy for state workers, which the public knows nothing about. There is absolutely no justification for their paying lower levels of National Insurance.”
    http://business.scotsman.com/pensions/Revealed-how-pensions-loophole-leaves.3285231.jp
    Official figures put the total amount owed by taxpayers to state pension schemes at over £500billion – equal to the entire national debt built up over the last 200 years.
    But some experts estimate that the true figure may be more than twice that amount.
    Pension schemes for both teachers and civil servants have both reported multi-billion pound increases in their total liabilities in the last month. Mr Alexander added: “The Government must stop hiding from this issue.
    “An independent commission should be established to look at both the fairness and long-term sustainability of public sector pensions. This is not an issue that is going to go away.”
    Forty years from now, private sector workers may well find themselves working seven years longer than public sector workers, and still retiring with a pension worth considerably less.
    Earlier this summer the Tories claimed Gordon Brown had “buried” figures which revealed taxpayers will have to find another £110billion to plug the gap in the public pension pot.
    Shadow Pensions Secretary Philip Hammond said: “It is the taxpayer who will have to fill the gaping public sector pensions black hole. Gordon Brown has created pensions apartheid in the UK.
    “He has allowed public sector pensions liabilities to spiral, while taxing private pension funds and blocking proper help for 125,000 private workers facing an uncertain retirement.”
    https://www.express.co.uk/printer/view/15890/
    Tom P, the majority of your comments add nothing to the debate.
    I do have sympathy with your views on private sector director packages. These are typically brought up by individuals intent on using the art of misdirection ie lets examine the elephants droppings instead of acknowledging the elephants presence.
    Private sector directors enjoying the benefits of the kind you mention represent a miniscule proportion of the working population. It is so insignificant I can’t even be bothered researching the actual figure – probably less than .01% of the working population.
    If you refuse to recognise the problem that’s your right – carry on I say…….give us all a laugh.

  • Call me Dave

    Just to clear up the public sector reform of Normal Retirment Age. It is true to say that the NRA has been increased from 60 to 65. HOWEVER – this only applies to new entrants. All existing public sector employees (the vast MAJORITY) continue to be able to retire at 60.
    Of the very few final salary schemes that still exist in the private sector the MAJORITY (new and EXISTING members) have had their NRA increased from 60 to 65.
    Removing a minimum of £5bn per annum from pension funds since 1997 has had a significant impact on the continued affordability of the rolls royce of pensions, the final salary scheme. As most experts acknowledge (regardless of political persuasion)

  • Steve Robson

    Facts:
    The retirement age for ALL local government employees currently aged under 52 is 65.
    In the local government scheme, reduced benefits do apply to new and existing staff, but clearly not for entitlements up to the date the change was made (1/4/08). To reduce retrospectively would be contrary to what has been done elsewhere and illegal. You cannot ask people to contribute to a scheme on one basis and change it late.
    Local Government scheme contributions are 6 to 9% of salary (was all 6% pre 1/4/08).
    Local Government Schemes are FUNDED, ie there are investment pots to pay liabilities from. Like in the private sector these have shortfalls particularly because of recent years poor investment returns and of because local authorities stopped paying employers contributions in the early 90′s to rescue the Tories from their Poll Tax debacle.

  • Call me Dave

    Steve, I did want to avoid examining the droppings as it detracts from the central issue of social justice – but since it’s you;
    Normal pension ages in some of the main public sector pension schemes are:
    Civil service – 60 for members who joined before 30 July 2007; 65 for members who joined from 30 July 2007.
    Teachers – 60 for members who joined before 1 January 2007; 65 for members who joined from 1 January 2007.
    NHS – 60 for most members who joined before 1 April 2008; 65 for members who joined from 1 April 2008.
    Police – maximum pension after 30 years’ service for members joining before 6 April 2006; maximum pension after 35 years’ service for members joining from 6 April 2006.
    Local government – normal pension age of 65. The ‘rule of 85’, which allowed members to retire with a full pension at 60 provided that their age and years of service summed to 85 (ie, that they had 25 years’ service) has been abolished. There is full transitional protection for older employees.
    Whether the NRA is 60 or 65 is a mute point. We could increase the NRA to 65 for all public sector employees but the fact still remains even by doing this the pensions apartheid remains.
    Whether the contributions are 6 or 9% is also a mute point for the same reason. From your perspective your probably thinking hang on a minute that’s a 50% increase but you ignore the fact that the true value of the benefits are nearer 40% of salary – not 9%.
    The local government “funded” point is also, yes you guessed it, a mute point. In order to create a fund you first have to put money into it – take a wild guess where it comes from. As far a shortfalls are concerned, yep, no worries for “funded” public sector pensions. This is one of the only times a local authority will justify cutting back services, increasing community charge or both in order to ensure the continuation of the pensions apartheid.
    I would never argue that benefits accrued to date should be anything other than protected.
    There were at the last count about 125,000 private sector employees who lost all of their accrued benefits – their employing companies went into receivership. Legal or not the government refused to compensate these poor people.
    It must be great to know that as a public sector employee you don’t have to worry about this.
    Thousands of people are losing their jobs every week in the private sector right now. Despite the fact that many companies reduced their exposure on pensions.
    Ain’t workin in the cooncil great…….

  • Call me Dave

    All, I sincerely hope you have read all the posts and we can now avoid examining the distubingly attractive eyelashes of the elephant sat before us.
    I hope that we have reached an understanding that it is morally wrong for your neighbour to retire on means tested benefits whilst you retire in relative luxury at his expense. I’m not knocking you for trying to defend the status quo. Unfortunately majority of us act out of self interest rather than for the greater good. It’s just human nature.
    Perhaps we can now acknowledge the problem and talk about what we propose to do about it?

  • Call me Dave

    Now would be a good time to expose MP’s pension arrangements. The government response will be the usual;
    “the pension arrangements remain fully costed and fully affordable”
    yeah….right
    Just like MP’s expenses…….
    Just because MP’s pensions are “fully affordable” doesn’t detract from the fact the arrangements are morally bankrupt.

  • Call me Dave
  • Call me Dave

    Oh dear!! The £1 trillion liability has now increased by £200 billion to £1.2 trillion. That’s 1,200 billion. Please take a moment to consider that 1 billion is £1,000 million.
    My apologies for perhaps misleading readers that the liability was a trifling £1 trillion.
    http://www.timesonline.co.uk/tol/money/pensions/article6597719.ece

  • Call me Dave

    According to the influential British-North American Committee (BNAC), Britain’s unfunded pension liability – the retirement benefits of civil servants paid out of future taxes – amounts to 85pc of annual GDP. The ratio is 28pc and 27pc respectively in the US and Canada, “where the majority of public sector schemes are now funded”, BNAC said.
    Above from recent Telegraph article;
    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5677888/UK-public-sector-pensions-burden-worse-than-in-US.html
    On PMQ’s this week Harriet Harman responded to a question from one of her own Labour back-benchers about public sector pensions. The response was “no change”.
    In other words;
    1/ pensions apartheid will continue.
    2/ this Labour government are fiscally inept
    3/ this Labour government are cowards
    4/ This Labour government are living for today and don’t give a to55 about the misery that will hit your children and grandchildren as they are robbed to provide a luxurious retirement for state workers.
    5/ this Labour government are finished
    6/ Only David Cameron will tackle the problem
    7/ The SNP are inept and avoid the problem – I live in Scotland and will never vote for them.

  • Call me Dave

    Judiciary Pensions Tax Funded Bailout. (this for a relative handful of public sector employees)
    Figures put before Parliament by the Treasury show that the judicial pension pot rose from £62 million in the financial year 2004/5 to £131m last year.
    The cost is set to rise again over the current financial year by 16 per cent, to £151m.
    http://www.telegraph.co.uk/news/newstopics/politics/lawandorder/5749812/Cost-of-judges-pensions-has-more-than-doubled-in-past-five-years.html

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  • Call me Dave

    I read with despair the articles outlining strategies to reduce the public sector borrowing requirement. The TPA joint report identifies a trifling saving on public sector pensions by increasing employee contributions by a meagre 50% from memory. Given that civil servants contribute 6% currently the proposal is to increase to 9%?
    This for a pension which has been costed to be worth 42.5% of salary?
    To add insult this would only apply to “unfunded” schemes. Where do you think the money comes from for the so called funded schemes?
    Where do you think the money comes from when there is a shortfall in said “funded” schemes??
    Just a tad dissapointed in the TPA for failing to recognise the savings which could be made by ending final salary schemes in the public sector and migrating all to money purchase arrangements thereby negating all risk to the tax payer whilst saving billions.
    If you would examine the links I previously provided it doesn’t take a genius to work out the true cost of public sector final salary pensions is circa 40% of salary – regardless of employee / employer contributions (schemes regularly bailed out so clearly under-funded)
    The public sector wage bill is currently circa £158 billion per annum.
    Reform to money purchase arrangements would save us circa 30% of the public sector wage bill = £50 billion.
    Your £50bn + my £50bn = solving our debt crisis.
    TPA; Why do you ignore the elephant in the room?

  • Brian Smith

    If public sector pensions are as low as Steve Robson and others claim then I have to ask, “what is all the fuss about?”
    Where do the multi trillion pound liability projections – seemingly accepted by all commentators – come from if the great majority of public sector workers retire on 2 bob a week?
    There’s something not quite right here.

  • Call me Dave

    http://thescotsman.scotsman.com/business/Between-the-lines-Reform-of.5634019.jp
    Above is an article by a corporate lawyer who also appears to fully understand the massive cost of the public sector pensions apartheid.
    He doesn’t appear to have grasped the fact that David Cameron has already commited himself to scrapping MP’s own final salary arrangements. Perhaps he’s an SNP supporter and chooses to ignore this fact? (since Salmond and his merry men are only interested in lining their own pockets like NuLabour)
    Great leaders are conviction politicians. They make decisions based on what is in the best interests of the greater good – not their own interests.
    Great leaders don’t really care if doing the right thing is electorally damaging (Unions / Thatcher)
    NuLabour cave in at the slightest hint of a policy being “unpopular”. There are no conviction politicians in the Labour or SNP ranks.

  • B White

    The story has been circulating for a few years that the closure of Defined Benefits Pension Schemes and the plummeting of the value of private pensions have been caused by Gordon Brown’s, ‘Raid on Pensions’. Michael Howard, in The Mail on Sunday’ on 17th April 2005 said:
    ‘Gordon Brown took one of the best systems in the world and turned it into one of the worst’.
    The story has been run, in particular, by The Daily Telegraph, Daily Express, Daily Mail and has been picked up by television and the radio. The Taxpayers’ Alliance has promoted the same story and they have been quoted as an authentic source by The BBC ‘Today’ programme, Panorama and Channel 4. The Tory Party has repeated this story as if it is true.
    This one sided story is a mixture of half truths, exaggerations, smokescreens, scaremongering and misrepresentations. It is an example of how a concerted and organised campaign by The Taxpayers’ Alliance, the Tory Party and the Tory press has misinformed the public and created a perceived truth in the public mind, out of propaganda.
    It is now an accepted ‘fact’ that Brown is the main cause of the failure of pensions to deliver. The Mail’s words were:
    ‘Mr Brown’s decision forced companies to make up massive shortfalls and began the decline of final salary schemes.’
    The real pension’s crisis is the result of policy instigated by the Conservative administration from 1980 onwards and the incompetence and lack of foresight of the pensions industry to account for demographic factors and understand that the financial growth of the eighties and nineties was built on sand. Brown’s failure was to not see through the unfounded optimism of the financial sector and big business and to continue the policies of the previous Tory administrations.
    Members in occupational pension schemes rose from 6.2 million in 1953 to 12.2 million in 1967. This was the peak year for active membership of occupational pension schemes. Defined benefit schemes were a particular feature of the manufacturing sector and the decline here, particularly in the seventies and eighties had a downward effect on defined benefit occupational benefit schemes. The 12.2 million participants had already fallen by 15% to 10.3mill in 1995 for all employees but startlingly for the private sector the numbers had fallen from 8.1 million to 6.2 million, a drop of 23%. So, occupational pensions were already in serious decline before Labour came to power.
    In 1974 Barbara Castle reviewed the State Pension and came to the conclusion that that pensioners were falling into poverty and relying on means tested benefits because pension provision had fallen behind earnings. Pensions were increased by £26 and the link to average earnings was created.
    Mrs Thatcher’s government immediately unwound this policy by removing the link between pensions and earnings. It was the intention for the state pension to gradually disappear. Peter Lilley, later a minister in the Thatcher government and an ex stock broker, said that the state pension should be allowed to ‘wither on the vine’. They also reduced the attractiveness of the SERPS scheme. The Pensions’ Commission’s First Report concludes:
    ‘As the long-term public expenditure implications of SERPS became increasingly apparent………….the Conservative government linked the BSP (Basic State Pension) to prices and subsequently reformed SERPS in a number of steps, for instance in 1986 and 1995, which reduced its generosity.’
    Currently, less than half of British people have made private provision for retirement. According to The Daily Mail ‘The average private sector worker retires with a pension pot worth £25,100, enough to pay them £1,700 per year,’ or about £33 per week. For all pensioners including those in the public sector the average is about £60 per week.
    Over 4 million pensioners are entitled to pension credit but 40% of them do not take up this entitlement. Millions hover around or below the poverty line. If the link to earnings had not been removed by the Thatcher government, the state pension would be in the order of £60 per week higher for a single pensioner, currently on £95.25. Each of the private sector workers referred to by The Daily Mail is £60 per week worse off because of Mrs Thatcher’s actions. We can see the impact on The Daily Mail’s typical pensioner. If we assume a worst case, that Brown’s ‘raid’ reduced the pot by 10%, the effect of this on the pensioner would be £3.30 per week compared with the £60 removed by the Tories.
    This action affects the many millions, including those on small occupational pensions who rely on the state pension and is the most significant factor affecting the income for the majority of our pensioners.
    During the eighties and nineties, the pension industry seemed to be able to do no wrong. Money flowed in and the stock market provided historically high returns. However, like the build up to the credit crisis, heads were in the sand.
    All of the negative factors, such as increased provision, higher costs and greater life expectancy were covered by the stock market increases and company after company started to develop significant surpluses. The Conservative government was aware that this created a tax revenue problem and so took action to increase its tax take. When companies were making high profits, they could put money into pension funds to reduce profit and therefore their corporate tax liabilities.
    In the 1986 Finance Act Nigel Lawson took measures to address the problem. He introduced a ‘stealth tax’. He made it a requirement that each fund must actuarially calculate the level of surplus in its scheme and remove any surplus over 5% over 5 years or lose part of its tax exemption. The result was a huge dip in pension contributions. Employer contribution rates to Self-Administered Occupational Pension Schemes as a Percentage of Wages dropped from nearly 9% in 1988 to 6% in 1991. From 1986 to 1991, occupational pension fund contributions fell from over 2% of GDP to less than 1.0%. The conclusion of the Pensions Commission was that this Tory pension raid was ‘predicated on assumptions about the sustainability of long term returns which were over optimistic.’
    Still, the booming equity markets continued and hid the underlying problems. Pensions seemed to be immune from reality so in 1993 Norman Lamont decided to reduce Advance Capital Tax relief claimable by pension funds on dividends from UK companies. This measure cut income to pension funds and was repeated in 1997 by Gordon Brown, who completely removed the relief. Lamont’s was a simple tax gathering measure, whereas Brown’s was linked to a reduction in Corporation Tax from 33% to 30%. However Brown’s tax, like Lamont’s did adversely affect pension funds. The Pensions Commission summed up the effect of these factors as follows.
    ‘From 1974 to 2000 the average real return on UK equities was 13%, compared with a twentieth century average of about 5.5%. This made increasingly expensive pension provision appear easily affordable to both employers and to government. Employers took contribution holidays, and used pension fund “surpluses” to make early retirement packages look like costless alternatives to cash redundancy payments. And the government tightened the tax treatment of pension funds in 1986, 1993 and 1997. In retrospect the actions of both employers and government were based on irrationally exuberant assumptions about sustainable returns.’
    Brown’s folly was to believe the paradigm that the pack of cards would never collapse. He should have not discouraged saving. Lamont had, of course done the same in 1993 and Lawson in an even bigger way when he used the Finance Act provisions to encourage companies to take pensions holidays. Brown’s biggest blunder was to give the money men the excuse to blame the results of their greed and incompetence on him and it provided The Taxpayers’ Alliance and the Tory press, working hand in hand with the Tory Party, party, a cause celebre to focus on. The editorial in the Financial Times of 9th April summarises:
    The decision was also a political error: it was a perfect example of ‘Stealth Taxes’ that have rightly damaged the chancellor’s reputation; furthermore it gave scheme sponsors and advisers a perfect excuse. They could now blame Mr Brown for all their blunders.’
    We have a situation where a lie is planted in the public domain, repeated by a partisan press and interest groups, until the lie becomes the truth. So well done! You have succeeded in your objective. However honesty and truth are out of the window. It is propaganda, managed to a level of sophistication that is truly Orwellian.

  • Call me Dave

    Well B White, what is the solution? You appear to have much to say on the subject so can we assume you have an(no)idea to address the pensions apartheid which exists between the public and private sectors (or is this one of the “lies”)?
    We can twitter away forever about why this situation has developed (you have twittered very well indeed – well done!)and indeed twitter away about trying to absolve Mr Brown of all responsibility.
    Do you accept the current situation is untenable (or is this one of the “lies”)?

  • Call me Dave

    Well B White, no ideas appear to be forthcoming (what a surprise!!) It is your hero’s lack of action and self interest (along with the other MP’s & Whitehall) which has resulted in them ignoring an untenable and socially unjust situation to become exacerbated.
    Honesty? Integrity? Propaganda?
    What tosh you talk.
    The only propaganda is the official government line that “public sector pensions remain fully costed and affordable”. As are MP’s expense arrangements.
    These things may well be affordable (for now) but it does not mean to say they are morally acceptable.
    As I suspected your rather long and boring comment was designed to detract from the elephant in the room – you don’t fool me.

  • Call me Dave

    B White, I would very much like for you to respond in order that I can “set you on the right path”.
    Silence is indeed golden………
    I will be watching the Conservatives very closely on this subject. They had better deliver what they have promised!!!

  • John Holmes

    Similar to Mr W Grist, I left school at 15 and joined the Army. On leaving, I worked for 2 years in the private industry before joing the Police. I served for 23 years paying 11.5% towards my pension. I was invalided out before serving my full time and therefore received a reduced pension. Police pensions are linked to the RPI and therefore, this year, our pension “increase” is 0%! The pension is not liveable on alone and it is also taxed (again). When I go onto Old Age pension this year, my Police pension will be reduced and I also receive a reduced OAP pension! (Two bites of the cherry?) So not all public pensions are “gold plated” are they?

  • Call me Dave

    Dear John, “So not all public pensions are “gold plated” are they?”
    The vast majority are. As I’ve previously pointed out over 90% of public sector employees enjoy “gold plated arrangements” and by that we mean pensions linked to final salary ie defined benefit arrangements.
    The IEA calculate your police pension which you contributed 11.5% of salary to is actually worth circa 70% of salary. ie this is the true cost with tax funding the shortfall.
    All, here is the policy document outlining the changes which must be made. It also explains fully why your private sector employed neighbor is subsidising his public sector employed neighbors retirement whilst he will retire in relative poverty.
    http://www.iod.com/intershoproot/eCS/Store/en/pdfs/policy_paper_Pensions_Apartheid_report.pdf