As inflammatory headlines goes, this takes some beating.
If the UK pensions minister has lost confidence in the sustainability of providing pensions to 6.6m public sector employees (including himself) then we may have more change on the horizon than ever we thought.
Let’s be clear about what Imogen Tew of the Sunday Times , reported.
And then there is the gnarly issue of public sector pensions. There are 6.6 million public sector workers (including MPs) who have defined benefit pensions that pay a guaranteed income for life. The taxpayer liability for these schemes is about £2.4 trillion.
Only 900,000 private sector workers have the same type of pension and only 600,000 are in schemes open to new members. They have been largely killed off because the guarantees proved too expensive for businesses and so workers were moved in to less generous defined contribution schemes, where returns and pension income is not guaranteed.
Opperman said that public sector pensions “should be reformed, and a government in the future has to address that. It is not sustainable for this state, or any state, on a long-term basis. It’s a practical reality. I don’t believe it is the case that in 10 to 20 years’ time we’re all going to be in defined benefit schemes.
“It applies as much to the civil service and to members of parliament or anybody. We are going to move to a different type of pension scheme, and the public sector is the last bit.” (my bold)
So what does the Minister have in mind as a “different type of pension”. I have sat in a room with him and hear him use that very phrase of “CDC”, is that too speculative?
There are swathes of the Canadian state pension system that has moved from defined benefit to the less certain but much more affordable benefit of CDC. If there is any sense to the vase weight of legislation that has been thrown behind the Royal Mail’s CDC project, it is that scheme based CDC is repeatable.
But moving a funded pension like LGPS or the MP’s scheme to CDC is one thing, moving unfunded pension schemes onto a DC and conditional pay-out basis is quite another. There is no way that UK plc is going to find a fund for the bulk of that £6.6 trillion of liabilities and it takes a stretch to imagine how linking pensions to some measure of economic performance could work.
In the less ambitious approach where a CDC fund was established for future accrual (with the remainder of the liabilities guaranteed by the tax-payer), there is still an enormous strain on the exchequer and an issue of capacity. The largest pension scheme in the world (Calpers) still only caters for public servants in one US state. Calpersers serves 2m members, moving UK’s public sector to any alternative to an unfunded basis would triple that number.
But to say this to the Sunday Times – albeit with timeframes that exceed any hope of his ministerial tenure (not on Guy’s watch), suggests that somewhere in Government there is some thinking on this. Is that unthinkable?
