Misleading Unison response to our report on council pension deficits

April 13, 2012 2:29 PM

Unison make three points in response to our report this morning on the black hole in council pensions.  They pretend that there is something wrong with us "comparing liabilities to assets"; try to play down the cost to taxpayers; and cite the same misleading 'average' public sector pensions figure they always cite when the high cost of generous public sector pension provision is scrutinised.

There is nothing wrong or even unusual about us comparing the estimates of local government pension fund liabilities and assets that are given in their accounts.  That is the best way of working out the extent to which the fund has enough money set aside to cover its commitments.  Similar comparisons have led the OECD to conclude that local government pensions in Britain are "severely underfunded" and Anthony Mayer, Chair of the London Pensions Fund Authority, has argued that local authority pension funds should have defined asset to liability ratio targets of around 80 per cent to ensure that any future pension commitments can be honoured. If the funding ratio fell below that level, then the fund would have to submit recovery plans to restore their funding over a defined period.

These deficits are real, equivalent to around £2,000 for every family in Britain, and, while improvements in the value of the assets might close the gap to some extent, taxpayers are on the hook.

Then their claim that we are wrong to state that employer (i.e. taxpayer) contributions to council pensions are equivalent to £1 for every £5 raised in Council Tax.  Again that is a simple and entirely legitimate sum.  Employer contributions were just over £5 billion in 2010-11 and Council Tax raised £25.7 billion that year.  That means employer contributions were equivalent to £1 for every £5 raised in Council Tax.  Of course, that isn't the only money councils get.  They are also funded by grants from central government and other taxes and charges.  Unison therefore prefer to quote the, still substantial, 5 per cent of councils' total budgets.

But most people don't know what their share of their council's budget is.  So Unison's preferred figure doesn't help them understand the scale of council pension costs.  They do know how much they pay in Council Tax.  So that figure is a better way of helping them understand how important these costs are.

At the same time, quoting a share of Council Tax gives a better idea of what could be possible if these costs were cut.  For example, you can easily see that a 10 per cent cut in pension costs would, without any other savings, save enough money to allow a 2 per cent cut in Council Tax.

John O'Connell has written for the TaxPayers' Alliance about the ridiculous union statistics on the "average" pension before.  As he pointed out then, they are absurdly misleading:
If you worked in the public sector for a short amount of time, your total pension pot would be understandably small. But to add these pensions into an ‘average’ calculation is misleading. Look at the online calculators for the schemes themselves to get more informative results based on a career of work. A local government middle manager who retires on £60,000 a year can expect a pension of £30,000 a year. And the lower paid? A more junior worker at a council who retires on £25,000 a year can expect a pension of £12,500 a year. These are based on 30 year careers, too. You can add more to these figures if someone spends their entire working life in the public sector.

What about the NHS? A worker in the NHS who retires on £40,000 a year could expect a pension of £15,000 a year and a lump sum of £45,000, again based on a career of 30 years.

Unison's team can't really be aggressively stupid enough that they can't understand those figures don't fairly represent the generosity of a public sector pension.  It would be like quoting the "average" lifetime cost of cycling to work including someone who used a Boris bike one sunny day.  They must know that this is misleading the public.Unison make three points in response to our report this morning on the black hole in council pensions.  They pretend that there is something wrong with us "comparing liabilities to assets"; try to play down the cost to taxpayers; and cite the same misleading 'average' public sector pensions figure they always cite when the high cost of generous public sector pension provision is scrutinised.

There is nothing wrong or even unusual about us comparing the estimates of local government pension fund liabilities and assets that are given in their accounts.  That is the best way of working out the extent to which the fund has enough money set aside to cover its commitments.  Similar comparisons have led the OECD to conclude that local government pensions in Britain are "severely underfunded" and Anthony Mayer, Chair of the London Pensions Fund Authority, has argued that local authority pension funds should have defined asset to liability ratio targets of around 80 per cent to ensure that any future pension commitments can be honoured. If the funding ratio fell below that level, then the fund would have to submit recovery plans to restore their funding over a defined period.

These deficits are real, equivalent to around £2,000 for every family in Britain, and, while improvements in the value of the assets might close the gap to some extent, taxpayers are on the hook.

Then their claim that we are wrong to state that employer (i.e. taxpayer) contributions to council pensions are equivalent to £1 for every £5 raised in Council Tax.  Again that is a simple and entirely legitimate sum.  Employer contributions were just over £5 billion in 2010-11 and Council Tax raised £25.7 billion that year.  That means employer contributions were equivalent to £1 for every £5 raised in Council Tax.  Of course, that isn't the only money councils get.  They are also funded by grants from central government and other taxes and charges.  Unison therefore prefer to quote the, still substantial, 5 per cent of councils' total budgets.

But most people don't know what their share of their council's budget is.  So Unison's preferred figure doesn't help them understand the scale of council pension costs.  They do know how much they pay in Council Tax.  So that figure is a better way of helping them understand how important these costs are.

At the same time, quoting a share of Council Tax gives a better idea of what could be possible if these costs were cut.  For example, you can easily see that a 10 per cent cut in pension costs would, without any other savings, save enough money to allow a 2 per cent cut in Council Tax.

John O'Connell has written for the TaxPayers' Alliance about the ridiculous union statistics on the "average" pension before.  As he pointed out then, they are absurdly misleading:
If you worked in the public sector for a short amount of time, your total pension pot would be understandably small. But to add these pensions into an ‘average’ calculation is misleading. Look at the online calculators for the schemes themselves to get more informative results based on a career of work. A local government middle manager who retires on £60,000 a year can expect a pension of £30,000 a year. And the lower paid? A more junior worker at a council who retires on £25,000 a year can expect a pension of £12,500 a year. These are based on 30 year careers, too. You can add more to these figures if someone spends their entire working life in the public sector.

What about the NHS? A worker in the NHS who retires on £40,000 a year could expect a pension of £15,000 a year and a lump sum of £45,000, again based on a career of 30 years.

Unison's team can't really be aggressively stupid enough that they can't understand those figures don't fairly represent the generosity of a public sector pension.  It would be like quoting the "average" lifetime cost of cycling to work including someone who used a Boris bike one sunny day.  They must know that this is misleading the public.

Latest Blogs: