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Funded or not, pensions are pay!

In addition to all the other things I do I write a couple of blogs a week for the Citywire website. I’ve been doing so for a long time now; it keeps me occupied.

The reason for mentioning it is that the piece I wrote last Sunday seems to have received quite a lot of attention and comments. Ms Bruun thought that it was an issue that we should put on the JargonFreePensions site as a Bee-Mail as well as she feels many of our regular Bee-Mailers (as she calls you) would like to read it too and may not have seen it on Citywire.

So, and without further ado, I’ve done just that; the text of the piece I wrote follows here along with a link to the original on Citywire in case you want to read the comments there (or even add your own to them): There has been a lot of media noise in the last few weeks about the unfunded pension liabilities of many employees of the Government. Some public sector pensions are funded in the same way as private sector pensions are required to be, but many are not. Millions of public sector employees are therefore accruing pension rights that will be paid for as and when they come into payment rather than from funds set aside while they are in employment.

The argument for the so-called pay-as-you-go method of providing pensions is that there are great inefficiencies in raising money from the economy to simply reinvest it, at a cost, back into the economy once more; surely, or so the argument goes, it’s better to leave the money in the economy in the first place. Well, yes and no. Such logic may well be valid for state pension schemes aimed at providing retirement benefits for the population in general, but is the same true for pension rights arising from employment by the state? (Especially in the context of the worldwide economy of the 21st century?) Pre-funded pensions are backed by money.

Employers’ generosity is therefore tempered by the need to put sufficient money aside to back such promises of future income levels. The lack of the need to put money aside does not therefore have such a braking mechanism in place. These are the issues which these days are very much part of the national debate that’s raging, but it’s not what I want to write about here today. It seems to me that while we publicly discuss the rights and wrongs of funded and unfunded pensions a large number of hard-working people in the public sector will be getting quite alarmed by the headlines being generated.

How schemes are funded and paid for is only one aspect of what pensions are all about. A more important aspect is summed up in a three-word phrase; pensions are pay. We should not forget that fundamental principle when we talk about other aspects of pension policy. The pay that people receive from their employers (irrespective of whether that employer is the Government itself or not) can come in the form of cash paid into their bank accounts or paid out as deferred income in later life; a pension. But both forms of money, cash and pension promises are pay for work already done by employees under the terms and conditions of their employment.

The pensions promised so far to public sector employees like nurses, teachers and the police force are no different to the pay that was put into their bank accounts for the work that they did in the past. It is their money. Public sector pensions: unfunded or not, it’s their money

Related Articles

• “Our Overpaid Public Sector” and related posts (burningourmoney.blogspot.com)