You can read an excellent article free here, or mail me for a link – henry@agewage.com
I mentioned in my post on he Church of England’s pension, that today was a noisy day for pensions. Richard Tice is as noisy about unfunded public pensions as John Ralfe is about funded private pensions.
Richard Tice is set against the OBR in a strong report
Brought to the defence of taxpayer sponsored public sector pensions is Glyn Jenkins, an old friend of this blog and surely the longest serving pensions officer ever!
“There’s obviously a lot of political opportunism,”
said Glyn Jenkins, head of pensions at Unison, one of the UK’s largest trade unions.
“When a system changes and advisers are brought in, it can cost a lot of money to bring in an inferior scheme.”
I doubt a more succinct defence of public pensions has yet been made!
The point out why these unfunded schemes are such a political opportunity for Reform
You can also question what would happen if further tinkering was attempted, let alone the kind of changes to what are very much value for money ways for the Treasury to pay deferred pay to our pensioners.
The City would like to fund these pensions but as Glyn Jenkins points out “it can cost a lot of money to bring in an inferior scheme“.
Changing the unfunded public sectors?
Rather than leave Richard Tice to his explosive statement, the article looks at a variety of alternatives that Tice could investigate.
There is a long section given to understanding which sections of the public sector are becoming more expensive to pension and which are getting paid out less in pensions than are accounting for set aside to meet future bills. The article translates difficult sections of OPBR analysis into a readable illustration. This shows just how important funding the NHS section is (and why it is making good reading for the Treasury in terms of money in and out.
To suppose that changes can be made to a system of payments that is so integral to how public sector employees is paid, is naive. Carl Emmerson of the Institute of Fiscal Studies makes it clear that these pensions are deferred pay and cannot be treated like the pensions or savings plans in the private sector.
Most of the thinking on reorganising state pensions along private sector lines completely ignores the fundamental change with which public sector pensions interract with public sector pay
Policy Exchange, a right wing think-tank, has proposed putting those joining the public sector into DC schemes, with a total contribution rate of 15 per cent.
The savings would accrue after 14 years — to the tune of £19bn annually by year 30 according to the think-tank — although the estimates do not consider whether a pay rise for recruits would be needed to make the pension cut palatable.
Other options involve capping the benefits of DB schemes, similar to the Universities Superannuation Scheme, or introducing “notional” DC schemes earning government-set returns rather than market returns, as happens in Italy.
It is inevitable that as Reform increases the noise it can make in political circles, so it will get access to the areas of public sector policy that deals with public sector pensions. We have seen how much can be done quite quickly by a populist party in the USA.
I suspect that, despite the warnings in this article from Glyn Jenkins , Carl Emmerson and others, we have not heard the last of Richard Tice’s populist views on public sector pensions. Thanks to the FT for an excellent article.
Isn’t Tice the one who joined the team that brought us all the benefits of Brexit? I wouldn’t trust this lot to run the tuck shop
That Government favoured party over country the voters ignored the 1974 referendum to stay in Europe and the UK is on a poorer trajectory
If ignorance and apathy are the two factions to be governed by the only option is to leave before there is another exit tax imposed
Oh dear.
I find myself tending to agree with both John Ralfe and Richard Tice on the same day. What’s the matter with me, as Bob Dylan once sang?
Beginning with the CofE, I find the oversimplification of a large scheme as a balance sheet, without knowing much more about what lies ahead in terms of its cash flows and how pensions will be paid for in times of market stress, no way to go about this.
As for the use of repo, Con Keating convinced me (and others) some years ago that this could be illegal borrowing.
http://www.portfolio-institutional.co.uk/features/liability-driven-investment-testing-times/
The Church of England, as a House of Commons briefing paper noted, “requires parliamentary oversight of its measures”. Once upon a time there was a high attendance at its churches on Sundays, but attendances seem to be shrinking each year and the books are being balanced by church mergers, closures and property sales.
Will parliament look over this? I
doubt it, sadly.
Turning to public sector pensions, large swathes of the full costs and liabilities (on current and future taxpayers) of these have been hidden “off the books”, as Jim Sillars and others do say.
Sillars went even further to suggest this was non-accounting of such magnitude that if all recent Chancellors worked in the private sector they would be in jail.
There’s similar false accounting in the contributory NHS scheme where many well-educated doctors think their scheme is “in surplus” each year because the cash value of contributions currently exceeds the annual pensions outgo, when a longer look ahead at the levels of accruing future benefits shows a quite different picture of accumulating “deficit”.
Yet there are some “surpluses” in parts of the public sector pensions arena where better management might free up cash to cover other expenditure, the LGPS.
Previous blogs have highlighted City of Birmingham as one example.
We even seem to have them up here in Scotland too. I happened to be looking at the 2025 annual report yesterday for one of our (far too many?) quangos, Skills Development Scotland.
SDS has an annual budget of around £200m which it is striving to contain and reduce year-by-year. But looking at the pensions note at the back of their financial
statements suggests a share of “surplus” in the Strathclyde and Highland LGPS of up to £225m.
They use a baffling “asset ceiling” excuse to claim they cannot use any of the “surplus” to offset annual contribution costs, which are large enough to constrain other budget items.
That quango’s budget is crying out for better management of its assets, including a share of overfunded LGPS.
Who will bring an end to this false accounting and obfuscation in both church and state?
Thanks Derek
A surprising alliance.