There were two positions on public pensions and public pay. The view articulated by a Minister is that civil , healthcare, teaching and other Government paid workers should have more control of how much they get in their pay packet and the rights they build up for a retirement income. Chris Smyth comments in the Times over the new year
Officials are looking at ways to allow public sector workers to take higher pay at a time in their lives when they may be seeking to buy a house or look after children, in exchange for a lower income in retirement. Cat Little, the permanent secretary at the Cabinet Office, has said that she is reviewing “the balance between pay and pensions”, and has begun discussions within Whitehall about offering staff more flexibility.
The other view, given to the Telegraph’s Charlotte Gifford by Steve Webb, suggests that the Treasury would not like the impact
He (Steve Webb) said: “Because there is no money set aside now for the pensions of teachers, NHS workers or civil servants, any saving in pension costs would not happen until today’s workers retired, whereas the extra cost of higher wages would happen immediately.
“In general, governments prefer to push costs into the future rather than bring them forward, meaning this idea may not appeal to the Treasury.”
But now we have a third view, that of John Ralfe. I don’t normally read the Telegraph but he can be found there with a follow up article. Here is his headline.
This just might be the answer to the public sector pension problem
A solution is within reach, but the unions will fight tooth and nail to stop it
John Ralfe’s solution is to reduce pension rights but not to pass on the savings to the salaries of those with reduced pension prospects. This is of course going to infuriate those who understand what a pay-cut is but it may work if the unions don’t work up to it and if civil servants, teachers, NHS workers and so on aren’t noticing. It would also solve the problem Steve Webb has detected.
I think it is unlikely that unions will consider their members should accept a move to the solution John Ralfe proposes
The real aim of “higher pay for lower pensions” should not just be to move taxpayer costs from the pensions column to the pay column – it should be to cut the overall cost of public sector pay and pensions. And for there to be a genuine saving for taxpayers, the change must be compulsory.
The new lower public sector pension could be 1/80th of salary for every year worked – half the current value – with annual inflation increases capped at 3pc, like the private sector.
The reason it’s thought that ordinary people would buy into a 50% cut in pension payment is that it would come with a reduced demand on pension contributions.
The value of this would still be half the average salary over a 40-year career – much more generous than private sector defined contribution pensions. Staff would automatically have more in their pay packet, by saving half their own contribution, an average of 5pc of salary.
This is not a novel way of thinking of improving cashflows today. The option already exists for Local Government workers wanting lower pensions for a lower contribution. It results in higher take-home but has proved very unpopular – I wonder why?
Take up might increase if this was compulsory, the only way out would be to leave the scheme altogether – that is also an option and that is also unpopular.
I do not want to ridicule John Ralfe’s proposal, but I think there is an alternative he may not have considered. The alternative is to encourage those in proper funded and unfunded pensions which income and council taxes subsidise, to recognise the value of their future pensions. I am not against some flexing – if it can be done operationally and legal. Infact it might help those who get paid by the Government, how much better they are than the majority of private sector workers – when it comes to pensions that is. It might include (as Local Government schemes do) an option to swap DC pots for extra DB pension.
I also hope that the debate on the value of funded and unfunded DB pensions will spread and we will start thinking of levelling the private sector up. If the best way of targeting a unified approach to pensions is to look at a level of pension equivalent for all, I would be pleased- so long as that level was not achieved to make life better for a part of society and to certain shareholders who would benefit without properly participating in making things good for all.
I am grateful to the Times and Telegraph for airing this discussion and to all who have made comments. We need a proper discussion. We need pensions for all and we need to consider how we go about this with the support of all sectors of the workforce.
As for the pay of health workers, I am of the opinion that the workers in the neurology ward of King Edwards College cannot be paid enough – I can’t see that view changing , nor the view that they deserve decent pensions.