Pensions: why civil servants shouldn’t complain

Tim Bennett looks at why public sector pensions are a such an attractive benefit, and why civil servants are taking a high risk approach by striking.

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  • Boris MacDonut

    You imply that public service pensions are old fashioned and the dynamic private sector has moved on to something better. You say Civil Servants have something most private employees would love to have. Nobody is barred from taking a public sector job and we get no company cars, no healthcare, no bonuses, no Xmas party etc.. the pension is our only benefit and you’d have it taken from us .
    This is right wing nonsense dressed up as a school lesson on pensions.We are taxpayers too. 6 million of us paying plenty of tax , far more than the £5 billion shortfall on the Government’s pension Ponzi . Hutton has shown that the percentage of GDP needed for public pensions will fall from a peak of 1.6% this year to 1.4% in ten years time. Hardly unaffordable.
    I think some red faced “go-getters” in the private sector , woke up in 2008 to see the tortoise overtaking the hare. Sour grapes.

  • charlesdb

    Most ordinary private sector employees need company cars for their job. And they are taxed on it. Most don’t have a company car. Bonuses? Just the bosses mate. (by the way, some civil Servants get bonuses too) Xmas party? Big deal! Sour grapes? You bet. Have you any idea how much capital you would need to put in, to get the equivalent of a Civil Servant’s inflation proofed pension?
    Not only are Civil Servant pensions an amazing perk, but salaries have also overtaken those in the Private Sector. And if anybody says why level down benefits – isn’t that what the left have been trying to do and arguing for, for the last 60 years via the tax system?

  • jimtaylor

    I’m fed up hearing Public Sector workers bleating about how badly they think they are being treated.
    Public Sector pay is higher and pensions are better and they need to realise how good a deal they are getting and why that is unsustainable.

    Donut – here’s a suggestion – why not resign from your Public Sector employment and get a job in the private sector, and then you can say how good the private sector is for you.

  • The Uncivil Servant

    The government promises a 14% contribution to a teacher. This is deferred pay and not a freebie. A teacher on £24,000 is comparable to a worker earning £27360 without a pension
    A teacher on £48,000 is comparable to a worker earning £54720 without a pension. That average of £600 a month becomes more affordable.
    You don’t seem to be too bothered about future taxpayers paying the private sector worker a second state pension (S2P, used to be SERPS) which the public sector worker won’t get as they are contracted out.
    If the private sector pension scheme has invested in gilts, you don’t seem too worried about future taxpayers funding those. You don’t seem too worried about future taxpayers funding index linked savings certificates. Now lets see the government renege on those promises without major problems (goodbye AAA rating) , but public sector promises seem to be fair game.

  • Boris MacDonut

    #2 Charlesdb. The Civil service pension is a ponzi. How much to save is irrelevant as long as enough comes in to meet outgoings. The peak cost is now passing, the future will be fine. It is not our fault the free market has not provided for the private sector or you did not have foresight to put enough aside.Why should we be hammered for your poor choices?
    #3 Jim. We are sick of being badmouthed for making a good, sensible career choice that turned out better than your own. The free market is all about choice and taking responsibility for your self. I did that in 1986 when I decided not to become an accountant ( too good at maths for that).
    You voted for Thatcher now you don’t want to live with the results. Sour grapes and it’s too late.

  • Tim Bennett

    Worth remembering in all this that the private sector generates all the wealth that funds the public sector. Without entrepreneurs and businesses (and in the absence of an empire!) there would be no way of paying for doctors, judges, civil servants, teachers and so on. Now while I have no issue with the fact we need all those jobs done, and done well, the fact remains that private sector jobs should, on average, pay better than public sector. Equally private sector pensions should be on a par, at the very least, with the public sector. Otherwise something is badly wrong.

  • Jim

    Isn’t the NSI public sector and I presume makes a profit, although looking at the interest rates for most of the accounts they offer I wonder why they bother.

  • charlesdb

    Hey Boris MacDonut, how do you know I voted for Thatcher?

    You are drawing a lot of false conclusions. Please stick to facts. The facts are that Civil Service pensions at the current rate, are unsustainable.

    Running my own business, employing people and contributing to the country’s wealth (as well as my own) has made me very proud. I can never understand how people can stick in a job for life, waiting for their pension at the end of the rainbow; but I accept that everyone has a free choice and a different outlook on life.

    (A preference to work in The Public Sector, despite having qualified as an Accountant, offers us all an interesting insight).

    Ponzi schemes have a habit of collapsing. In the light of simple economics and The Hutton report, this Government has decided to act. The pension deficit has to reduce.

    Government employees – especially trained Accountants -need to smell the coffee.

  • Boris Macdonut

    #6 Tim. You are wrong. Do you seriously believe that 6 million people working in the public sector generate no wealth?
    When a doctor saves the life of an entrepreneur is that just a cost neutral event? When we send 10,000 troops to Afghanistan who gets to cloth and equip them? When a new road is built cutting the travel time between two large cities by an hour is there no added value? Does the existence of the police, the law courts and the rule of law, allowing the free ownership of property mean nothing?
    The private sector would collapse without the public sector.

  • Boris Macdonut

    #8 Charlesdb. Where do you get your “facts” from? Then Daily Mail !
    Public pensions are perfectly sustainable they are just opposed on dogmatic grounds by Cameron and his toff mates, are you one of them?

  • Andy

    priv versus pubs “debate” aside…

    The pension fund I work for (which also delivers a decreasing amount of mail each year) has a huge deficit history. According to the FT on June 24/2011,”Royal Mail’s pension deficit fell from £8bn to £4.5bn…” This was attributed to changing the indexation from RPI to CPI. That is a 44% decrease of a huge amount! I thought I understood fiscal drag but Im struggling to get my head around why it can be such a powerful weapon.
    Maybe a future video can address this subject?

  • jimtaylor

    Once upon a time there was a parasite and the parasite attached itself to a host.
    Times were good and there was food aplenty. The parasite and the host both grew happily.
    Then times were bad and the parasite had grown too big for the host…………………….so how should this story end??

    Why are there so many useless people and people in non-value adding jobs in local council and jobcentre offices for example, soaking up Public money and not providing the standard of service they should?

    Approximately a third of them should be sacked for being useless or for not having a proper job, and if these organisations then find themselves genuinely short-handed they should fill some of the vacancies with competent people who will provide a proper service more efficiently.

    By the way, I speak from personal experience of meeting people in these organisations where approximately a third of them are numpties who seem more concerned about keeping their job rather than doing it.

  • Phil K

    No mention here of the huge hit that private schemes took from Browns new tax from 1997 – cost so far > £120bn and used to fund public spending. Since then my private sector pension has been adjusted four times (always worse off) to compensate this and the other factors in the article. I struggle to see why others should not face this reality – which is fairness.

    The other factor which gets lost in this debate is that I don’t think that accrued benefits are affected by this change – just the future. Which means that the argument that “I’m a public sector worker and I gave up fabulous salaries and benefits to do my job, in return for a decent pension” is a bit irrelevant. The benefits of that trade off up to now remain.

  • marie

    Why should the young be burdened with all this. Abolish the
    state sector way of doing things – think of all those overpaid
    council bosses on £250K a year etc. Shropshire has the right
    – sack them all and get them to reapply for their jobs.
    Most people would miss the dustmen most of all/people with
    children would miss the schools. What care do the elderly get
    now? Surely a lot of these things could be handed over to
    the private sector.
    Education and Health are generally a mess. We pay much more
    for a lower service from the GPs. I know 3 people – 2 aged
    in their 40s and one in their 20s whose problems went
    undiagnosed and they all died within months. You cna’t get
    access to a doctor at weekends.

  • David

    Before the 1980s public sector workers were genuinely worse paid on average than the private sector, so job stability and a good pension were their compensation. The (Thatcher-driven) 1980s recession saw private sector pay frozen or even reduced, while public sector pay continued to increase. The (Major-driven) 1990s recession saw the same thing happen again. As a result, average public sector pay has now overtaken that of the private sector.

    Now that the early ‘compensating’ factors are no longer needed to balance the sectors it is only fair that, in this time of economic hardship for EVERYONE, public sector workers should lose at least part of their unsustainably high pensions. Job stability for the public sector is still pretty good compared to the private sector, but eventually it will become a thing of the past for everyone.

  • Nev

    Actaually, it is not so much that public sector pensions are high – they are not, the average pension is only a few hundred pounds a month.

    It is that governments of all shades have calmly sat back and watched the British private pension sector being simply demolished over the last decade. Scheme after scheme is closing down and nothing is being done about it.

    The power to prevent these final salary scemes being closed has always been in the Teasurys hands, a stroke of the pen could have altered the accounting rules, or abolished Browns tax take, or simply made a final salary scheme a statutory requirement.

    The furore over public pensions is a red herring to obscure this destruction of traditional pension schemes. The security of a final salary sheme used to be commonplace. Cold winds of poverty will blow on us all, but not our elected leaders, their pensions are extremely generous and well protected.

  • GM

    #15 David, I can tell you as an ex-local gov employee, that that time has already arrived.

    I myself was not in the government scheme as I knew my employment would be brief ( ended up being several years, you live and learn ) my mother is still employed by the local government yet the sheer numbers imo clearly show that continuing the current scheme is unsustainable and so questions of fairness are reduced to an almost irrelevence.

    Clearly both the economics and the projected demographics mean change must come, however from my inside experience I’m fairly confident that the huge jobs cull that has already started will significantly reduce the stress on the future economy.

  • GM

    What should imo be practised immediately is for any new employees to be put on a more fiscally responsible scheme and then look to extend that to employees of say less than 6-10 years time served and/or all under the age of 40.

    It would be unfair at this point to expect elder and long served employees to bear the brunt of any cuts as they are, due to age, unable to significantly adjust in time before their retirement and have in many cases been through the significantly poorer paid years.

  • GM

    I would also point out that the majority of civil servants in fact do not get anywhere near the annual salaries mentioned in both the video and subsequent comments.

    When discussing Public Workers, it is often to those outside of ublic Service the Teachers, Nurses, Police and Firemen that people think of. What many do not realise is that many of the ‘lesser known jobs come with significantly less pay.

    Think Carers ( elderly, child, handicapped, mentally ill ) school dinner ladies, housing wardens, benefits office, drug/alcohol abuse teams etc etc.

    Many of these folk are on considerably less than twenty thousand pounds and few will ever get to a full thirty years service as hypothetically imagined here due to either the aforementioned jobs cull or more likely the extreme stressful nature of their jobs dealing with very demanding members of society.

  • wiggs

    Mr McDonut seems to be revelling in the prospect that he will enjoy
    a fatter pension than equally hard working private sector employees.
    I think he misses the point-Tim Bennett didn’t carp on about the unfairness- he points out simply that these unfunded commitments to pay a guaranteed income(often index linked) is simply unsustainable. There will not be enough tax collected, because there will be fewer taxpayers relative to pensioners – it’s got nothing to do with right wing, left wing or any other wing.
    What’s going to happen to your pension cheque Mr McDonut when
    the tax take simply isn’t enough to cover the payments the govt need to make in future years? Simples….they won’t pay you, pension payments are likely to be the first, not the last IOU’s which won’t be met. Feeling smug about having a civil service pension rather than the pittance we can expect from the private sector may be a feeling you can enjoy for the short term – but long term…be afraid, be very afraid!

  • Boris Macdonut

    #20 Wiggs. Total tax collected is £600 billion.The total just from the public sector is £120 billion. The shortfall on public sector pensions is expected to be about £8 billion in ten years time and is only £ 4 or 5 billion now.
    These unfunded commitments will need to rise pretty dramatically to make a proper dent in the tax revenue.
    Tim and you miss the real point The public sector allows the private sector to thrive. One of the reasons Africa suffers so greatly is the lack of a legal system to underpin property ownership and thus indirectly devaluing assets and making it difficult for all businesses. A lack of an infrastructure that private industry would not and could not provide.
    It is actually impossible to work in a public body and feel smug but you begrudge us a righteous anger at the coming betrayals.

  • 4caster

    The Hutton report states that the cost of public service pensions is 1.9% of GDP, which will steadily fall as the coalition’s reforms take effect. That expense is an integral part of departmental staffing budgets, and is now quite sustainable.
    I thought Tim Bennett’s video was a pretty fair assessment. And I write as a 40-year career civil servant (1961-2001), who was happy to receive a lower salary throughout that time than most private sector equivalents, in the knowledge that my work was “superannuated”, i.e. accruing defined, indexed pension rights. Neither Tim nor Hutton proposes to remove accrued benefits, although the change from RPI to CPI uprating is presently being challenged in the courts.
    I also have a history of being an active trade unionist, but have never gone on strike for a single day, nor have I ever asked anyone else to strike. This is not an appropriate issue for industrial action.

  • 4caster

    Those who think the grass is greener on the other side can usually switch between sectors. The fact that few do so suggests to me that total remuneration packages in the public and private sectors are roughly equal. One oversimplification of Tim’s suggests that public service pay and pensions are all met through tax. That is not quite true. The government owns 20 Trading Funds, e’g’ Ordnance Survey, Met Office, most of which make a profit and get their revenue from customers.
    It is specious to assign fictitious “Pension Pot” values to all public servants of whatever retirement date, on the basis of today’s record low annuity rates. Annuity rates were much higher when I retired a decade ago, and will be higher in the future. The “liabilities” totalling over £1 trillion will not all become payable at once. Some of them will not fall due for another 70 years, when today’s young public servants are in their 90s.

  • szyrma

    Two things have shocked, saddened and disgusted me about pensions in the United Kingdom: 1) has already been brought up, the raid on pensions by Gordon Brown – giving us jam today in increased public spending at the expense of our future income in old age. 2) When I started work in the sixties I understood that pension funds were handled by trustees, separate from the company, and by implication, safe. Then companies started to take “pension holidays”, i.e. not paying their contracted share. Then, when a company was in trouble, it turned out that the pension fund belonged to the company and was paid out to debtors. I used to be proud I was British!

  • Peter Newman

    Yes, the civil service pension scheme is perhaps the biggest ever Ponzi scheme – but this is not true of the local government scheme, which is fully funded. And most teachers are not civil servants, they are local government employees. Council staff have already seen increases in our pension contributions, and cuts in future benefits. Most staff understand the need for these changes. Incidentally our pensions are based on 80ths, not 60ths – so we need 40 years service to achieve half of our final salary as a pension – I will retire on less than 30/80ths (which is hardly gold-plated). Add to this that the average state employee does not earn £48k – the recent rise in average pay is mainly due to rapid growth in managerial salaries – and it becomes clear that even a final salary pension will still be modest for most local government employees. So don’t be surprised if low-paid Council workers strike to defend what they have.

  • paul

    There is also a problem with opting out. If the pension scheme changed from defined benefit to defined contribution, then the funding for the current pensions would be directly from the taxpayer, not funded from employees in the public sector.

    In a way, the public sector scheme is much simpler, and less problematic. Fund current pensioners from current employees. KISS – keep it simple stupid.

  • jimtaylor

    #25 – the local government scheme may well be fully funded, but from where? Follow the money and arrive at Council Tax.
    Teachers? – the Education Budget funded by income tax.

    In the end it is money predominantly from the wealth creating Private Sector to fund the benefits of those in the Public Sector.

  • Peter Newman

    Of course wealth creation is private. And unless we can dispense with the public sector entirely, all its costs have to be met either from direct charges or taxation – where else? Everything in the public sector that could generate a profit has been privatised already. Employer contributions to public sector pensions are effectively part of salary costs. And don’t forget, a large and increasing proportion of pension funding comes from the employees’ own contributions (that is, their savings). Just like in the private sector.

  • Kenny

    In the long run the majority of the public sector is funded via private sector investment. Given some of the comments on here, I find it difficult to reason with the strikes. I have no problem with nurses, doctors, judges and teachers etc. not wanting to sacrafice more of their income, however they must realise the government’s hand is being forced at these times. In my opinion free markets should decide what can and cannot be paid. We are far off that presently, although if the government (and the next, and the one following that!) is serious about tackling our debts, it is inevitable the next 5/10/20+ years will see public sector pension benefits being under severe scrutiny. Those who share my concern should start planning now.

  • Billy

    We are continually being told of the over generous and unsustainable public sector pensions. How private sector employees can only dream of such benefits and that public sector works should get real and except the government reneging on previously agreed contracts. However, I never read about the NON CONTRIBUTARY private pensions. Yes that’s right, my cousin works for RBS as a back office project assistant earns around £30K but will receive a pension of approximately £12K without contributing a penny. He also gets profit sharing each year that is worth about £400. This has continued even after RBS became state owned and made further losses.
    We all know that banking and financial services are a large part of UK industry.
    So one would imagine this is replicated fairly often?
    The Banks of course have been allowed to pass on their bad debts to the public and still pay themselves bonuses for failure. Hardly what I would call enterprising, entrepreneurship or free market.

  • Barkingmad

    Sure public sector workers are ‘taxpayers’ but you have to think where did their wages ultimately come from – that’s right – the PRIVATE sector (oh and loads of borrowing which again ultimately the private sector has to repay).

    So a public sector worker gets paid £1500 and pays 20% back in tax – you have to think where the other 80% came from.

  • Barkingmad

    Most private secotor workers would be very happy to get a nice guaranteed, inflation proof, final salary pension. The reality for many public sector workers is they have seen the value of their funds go down in real terms over the last few years and to get a pension paying half (or more) of final salary + inflation would have been very, very costly. The problem is public sector workers do not want to take the pain the public sector is forced to which is unfair as the private sector is ultimately paying for their pensions anyway.

  • Barkingmad

    “Yes that’s right, my cousin works for RBS as a back office project assistant earns around £30K but will receive a pension of approximately £12K without contributing a penny”

    Or (as David Cameron said) the public sector teacher retiring on £37800 who gets £25200 per year as a pension!

    So someone in the private sector earning £30k gets £12k pension (25% of salary) and the teacher earning almost £38k gets over £25k per year in a pension (plus no risk and inflation proofed). The public sector worker is earning about 25% more but getting well over 100% more pension.

  • Barkingmad

    “Council staff have already seen increases in our pension contributions, and cuts in future benefits”

    Join the club – many people with private sector pensions are being told their pension is not doing as well as they had hoped (understandably) so they have to contribute more if they want the same pension at the end. I know people approaching retirement and the value of their funds has taken a hit of 10% or more – lose 10% near retirement and it’s like losing years and years of contributions – public sector workers do not have that ‘risk’. Also yields on annuities have fallen so again you need a bigger pension pot to give the same income – again public sector workers do not have this risk either.