Public sector pensions need reforming

February 25, 2011 4:40 PM

Over the weekend Baroness Eaton, Chair of the LGA said that local government workers may start to opt out of the Local Government Pension Scheme if they had to up their contributions. Of course, the unions chimed in, with GMB saying that 39 per cent of their members would opt out of it.

But there is simply no other option than to ask local government workers to up their contributions. Yes, with inflation and a hike in VAT, along with a rise in fuel duty, the cost of living is higher for everyone now. During the recession, millions of workers in the private sector lost their jobs, or had their wages cut or frozen. The resulting fiscal crisis, exacerbated by years of overspending, means that spending must be brought under control. We recommended £50 billion worth of savings with the IoD in September 2009 and as part of that package, we said that public sector workers should increase their contributions by a third. This is not as arduous as it seems: it would only raise the typical contribution rates from 6 to 8 per cent of salary.

The pensions given out to those working in local government are generous as they are linked to final salaries, something which is all but extinct in the private sector. Is it likely that local government workers would opt out of this deal? The alternatives in the private sector are nowhere near as good, so perhaps this is the LGA and the unions doing what they do best: scaremongering to try and maintain the status quo for their members.

It was once considered a reasonable part of public sector packages to give generous pensions because of either the lower salaries they were on or the reward for public service. In fact, when we’ve released research on the Local Government Pension Scheme, we’re often told how little lollipop ladies actually get, and that we’re campaigning to take their pensions away. Not at all; executives in local government have hijacked antiquated systems, as have Councillors. But the truth is final salary pensions in their entirety have to come to an end as they are just not affordable, even funded schemes like the LGPS. As we recommended to John Hutton’s pension inquiry, schemes should based on defined contributions, as opposed to defined benefits.

There are other elements of local government pensions that need looking at too. Perhaps the thing that taxpayers find most egregious is executives that double dip. We’ve heard the stories: an executive leaves his or her post on full pension, only to walk into another well paid job in the public sector.

Taxpayers are rightly angry when council workers can retire on a full pension at fifty. True, a lot of these schemes have been reformed so that new entrants can’t take advantage of such ridiculous generosity, but there will still be those that benefit as old schemes taper off.  It is one thing to assume that those working in highly active frontline roles in the police or army are no longer able to continue at 50, but it is quite another and frankly scandalous that someone at a desk job is suddenly less able the day after their 50th birthday to carry on with their tasks. How offensive and wasteful.

The pension gap between the public and private sector needs to be narrowed, the current set up is unsustainable and unfair. Resistance and complaining about less generous packages was always expected, especially from well funded unions (86 million of taxpayers’ money was given to unions last year). But this is a ticking time bomb which needs a solution, so a slight increase in contributions is absolutely reasonable.Over the weekend Baroness Eaton, Chair of the LGA said that local government workers may start to opt out of the Local Government Pension Scheme if they had to up their contributions. Of course, the unions chimed in, with GMB saying that 39 per cent of their members would opt out of it.

But there is simply no other option than to ask local government workers to up their contributions. Yes, with inflation and a hike in VAT, along with a rise in fuel duty, the cost of living is higher for everyone now. During the recession, millions of workers in the private sector lost their jobs, or had their wages cut or frozen. The resulting fiscal crisis, exacerbated by years of overspending, means that spending must be brought under control. We recommended £50 billion worth of savings with the IoD in September 2009 and as part of that package, we said that public sector workers should increase their contributions by a third. This is not as arduous as it seems: it would only raise the typical contribution rates from 6 to 8 per cent of salary.

The pensions given out to those working in local government are generous as they are linked to final salaries, something which is all but extinct in the private sector. Is it likely that local government workers would opt out of this deal? The alternatives in the private sector are nowhere near as good, so perhaps this is the LGA and the unions doing what they do best: scaremongering to try and maintain the status quo for their members.

It was once considered a reasonable part of public sector packages to give generous pensions because of either the lower salaries they were on or the reward for public service. In fact, when we’ve released research on the Local Government Pension Scheme, we’re often told how little lollipop ladies actually get, and that we’re campaigning to take their pensions away. Not at all; executives in local government have hijacked antiquated systems, as have Councillors. But the truth is final salary pensions in their entirety have to come to an end as they are just not affordable, even funded schemes like the LGPS. As we recommended to John Hutton’s pension inquiry, schemes should based on defined contributions, as opposed to defined benefits.

There are other elements of local government pensions that need looking at too. Perhaps the thing that taxpayers find most egregious is executives that double dip. We’ve heard the stories: an executive leaves his or her post on full pension, only to walk into another well paid job in the public sector.

Taxpayers are rightly angry when council workers can retire on a full pension at fifty. True, a lot of these schemes have been reformed so that new entrants can’t take advantage of such ridiculous generosity, but there will still be those that benefit as old schemes taper off.  It is one thing to assume that those working in highly active frontline roles in the police or army are no longer able to continue at 50, but it is quite another and frankly scandalous that someone at a desk job is suddenly less able the day after their 50th birthday to carry on with their tasks. How offensive and wasteful.

The pension gap between the public and private sector needs to be narrowed, the current set up is unsustainable and unfair. Resistance and complaining about less generous packages was always expected, especially from well funded unions (86 million of taxpayers’ money was given to unions last year). But this is a ticking time bomb which needs a solution, so a slight increase in contributions is absolutely reasonable.

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