This is an extract from a blog posted by Corin Taylor on the IOD website,
Final salary pension membership in the private sector has already fallen 40 per cent since 2000, and the recession will only intensify this trend, as pension funds perform poorly and companies no longer have the cash to keep schemes going. If private sector employees have pensions at all, they are now more likely to be riskier “defined contribution” arrangements, where retirement income will depend on investment performance.
The public sector, however, stands out like a sore thumb. Most public sector employees still retire at 60 on generous final salary pensions. While new employees will have to retire at 65, by the time they reach retirement the state pension age will be 68. The scale of the divide between the fifth of employees who work for the government and the rest is now staggering. Nine out of ten public sector employees are members of final salary schemes, compared with just one in ten in the private sector. This pensions divide costs taxpayers serious money. In addition to employer (taxpayer) contributions worth around 14 per cent of salary, the Treasury has to find an extra £4 billion or so each year to ensure that payments to retirees are met. And with the unfunded liabilities of public sector schemes exceeding £1 trillion on some estimates, these annual payouts will only get bigger.
Two arguments are often put forward to defend the pensions divide: firstly, that generous pensions are a fair reward for a lifetime of moderately paid public service, and secondly, that just because the private sector has cut back on pension provision doesn’t mean the public sector should do the same. But these arguments no longer hold water. Pay in the public sector is now higher than in the private sector at all but the highest levels, and the enormous sums the government is currently borrowing mean that serious efforts will soon have to be made to reduce public expenditure, including the pensions of state employees. It is surely unfair for taxpayers to pay dearly for pensions that they cannot afford for themselves.
How long before the ratings agencies catch up with us and require us to take action over our public sector pension debt?
It is highly unlikely that any political party will take up the challenge without such a kick in the jacksee and while I’ve no wish to see a downgrade, I’m beginning to think it is what is needed to wake us up!