Today’s strike and pension myths7

The strike today has been called the “largest coordinated action ever seen in the UK” by the Public and Commercial Services Union (PCS). The unions claim nearly 3 million public sector staff are not at work today, but the paltry number of strikers outside government department buildings in Westminster this morning doesn’t quite give you that impression.

The strike is over pension reform, and the unions are refusing to accept necessary changes to unaffordable deals. Our response this morning is here, including a calculator which allows you to see the public sector salary required to match your total remuneration.

There are plenty of comment pieces out there this morning perpetuating myths about public sector pensions, so it’s important to knock a few of them on the head. Let’s take George Eaton’s piece in The New Statesman first:

“But as the graph below from the government-commissioned Hutton Report shows, public sector pension payments peaked at 1.9 per cent of GDP in 2010-11 and will gradually fall over the next fifty years to 1.4 per cent in 2059-60. The government’s plan to ask employees to work longer and pay more is a political choice, not an economic necessity.”

Here’s the graph Eaton references:

What Eaton’s piece doesn’t tell you is that this graph shows pension accruals and pensions-in-payment growing with CPI, rather than RPI, which is one of the measures the unions are so angry about. The projections shown in that chart are also the result of assumptions about public sector workforce and economic growth that may prove optimistic. The article also doesn’t tell you that the PCS, one of the unions on strike today, are looking to index their own pension scheme against CPI because their current scheme is unaffordable. They also want members to pay more more in contributions, according to reports. They’re striking against something they’re doing themselves.

Let’s take a look at another. Dave Prentis, the General Secretary of Unison, wrote on the Huffington Post this morning:

“Under the proposals, the low paid will receive only just enough to keep them above the threshold for means tested benefits when they do retire. The average pension in local government is £3,800 a year, but for women, it’s less than £2,800 – just £56 a week. More than half of women pensioners in the NHS receive a pension of less than £3,500 a year.”

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.

Mr Prentis also says:

“Both the health and local government schemes are in good shape, with billions more coming in than has to be paid out in pensions every year.”

Let’s take them in turn, the NHS pension scheme first. There was a cash surplus of around £2 billion last year. That includes huge employer contributions, which are taxpayer contributions of course. But anyway, this is not an indication of sustainability; the NHS surplus is a result of having a growing workforce. Those paying contributions to create the surplus are also building up pensions that will need to be paid in the future. Further, the surplus is returned to the Treasury, it’s not like this is a pension fund where they can realise increases in the value of that £2 billion to pay for future pensions. It just goes back to the Treasury’s general fund to spend on wasteful projects like High Speed Rail.

Additionally, this is the kind of warning sign our research note last week signalled – the NHS pension scheme has a lot more active members relative to ‘pensioners in payment’ than other schemes, but that will be changing rather quickly over the years. Overall the Treasury already had to top up unfunded schemes as a whole by a huge £4 billion last year, and that number is only getting bigger. Thinking the NHS pension scheme is fine now, so therefore it doesn’t need reform, is the kind thinking that got us to where we are now. It’s simply kicking the can down the road, and it’s disingenuous to pick the only unfunded scheme with so many more active members than pensioners to paint a picture of health for the wider public sector.

Now local government. Yes, it’s a funded scheme, with invested assets, and more coming in than paid out at present. Again, this includes massive employer contributions, which is taxpayers’ money to start with. Also, the argument that this scheme is “healthy” just defers any responsibility for paying off massive liabilities to future generations. Our paper on local government pension scheme deficits highlights how big this problem is, with over £50 billion more liabilities than assets in 2010. And it will get worse. Funded public sector schemes in countries like The Netherlands are not allowed to hold assets of less than 80 per cent of liabilities, but a quick glance at our paper shows that many local government schemes are nowhere near this. In fact, some have asset to liability ratios of less than 50 per cent. That’s not sustainable and will have to be paid off at some stage.

When you walk past a striker today, ask them if it’s fair that a worker on the minimum wage pays for generous public sector pensions, while being unable to even nearly afford a deal like that for himself. As I mentioned earlier, the unions’ own pension schemes are in trouble. You’d be forgiven for thinking that peddling misinformation and coordinating strikes is designed to boost their own membership and increase employee contributions, to fix their own broken schemes.

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John O'Connell
John is the Research Director of the TaxPayers’ Alliance, and the author of major reports on a wide range of issues such as healthcare, public sector pensions and regional business policy
Follow @jjpoconnell