It is now 25 years since this country was introduced to “stakeholder economics” – the concept that Government could engender a more friendly form of capitalism where profits were shared more equitably between stakeholders – including workers and consumers.
This idea of “profit-sharing” was right for the time. When Tony Blair and Gordon Brown set up stall in 1997, the country was in the middle of a sustained bull run in markets, the problems we now have with the NHS and other public services were not apparent , we had a pension system that was functioning on a very different basis than today.
The last 25 years have seen the language of Government changing from profit-sharing to risk-sharing with harsh polarities between those who take risk and those who don’t.
Nowhere is the polarisation between those who take no risk and those who take all risk greater than in the way we organise private and public pensions. Those in public sector pensions not only get bigger pensions, but they have the Government guarantee that they will be paid as an inflation protected “wage for life”.
What’s left of such guaranteed pensions in the UK is being herded down a fast track to self-sufficiency and buy- out. It’s being replaced by a system of DC saving where all the risk is left to savers to sort out, either by taking diminished income through the annuity market or by risking money running out in later age – through draw-down,
There is no equitability in this. There is a deeply held grievance in the private sector that they are paying more into public sector pensions than into their own. The risk equation appears to many “we pay our taxes to pay your pensions. We get no pension only a pot“.
A big idea for Labour
Labour are winning the political argument by not making the mistakes the Government are making. This is relatively easy to do when in opposition, but Labour has yet to find a big idea like stakeholder economics to excite the nation. Stakeholder Pensions were a manifestation of the Zeitgiest and they arrived soon after Labour in the late 90s.
Maybe the idea can be revived, albeit with risk-sharing rather than profit-sharing being the hook.
The trade off between pay and pension in the public sector is wrong. John Ralfe is right
“@TPS accounts show from 2010 to 2022 the annual taxpayer cost of pensions, after teacher contributions, went from 15.5% to 67% of salary.
Adding pensions paints a very different picture – rather than a 23% fall in real terms, teachers’ total pay and pension has gone up by c10%”
— John Ralfe (@JohnRalfe1) January 18, 2023
I don’t want to see teacher’s get lower pensions but I do think their pensions should be based to a degree on the capacity of the public purse to afford them. At times when the public purse is denuded, then flexing the pay v pensions equation makes sense. There are ways of reducing the cost of pensions that enable pay rises to be made, but where the cost of a pay rise is increased by up to two thirds by the impact of the pension rise, something is wrong. There is no risk-sharing, all the risk is being born by the tax-payer and if the tax-payer can’t or won’t pay, then we get social discord – as we are getting now.
The Government has “flexed” the triple lock – it’s not getting paid -it’s not increased by the rate of inflation right now. But the Government is still paying full inflation on almost all public sector pensions, under an agreement which shares no risk at all.
While the private sector looks to find an alternative to the binary approaches of drawdown and annuity, the public sector is starved of funds and wages while pensions aren’t discussed.
Matt Rodda and the shadow DWP team have an opportunity here to work with their Treasury colleagues towards a new settlement on pensions and pay in the public sector that could release funds for public services.
“A clap doesn’t pay today’s bills” -say the nurses. Nor does a pension guarantee. Something has to give and a good way for a new Government to return to stakeholder economics is through pension risk-sharing.