David Prosser: That pensions perk can be defended

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The Independent Online

Digby Jones, the outgoing director-general of the Confederation of British Industry, accused local authority workers of selfishness, following Tuesday's strike over pensions.

It was a typically ill-informed accusation - while the council staff who took industrial action were undoubtedly keen to protect their own pensions, they were also striking for future generations of workers.

In fact, the case for the pension reforms proposed by the Government is far less clear cut than business leaders such as Sir Digby - who are themselves on course for handsome pension payouts - would like to pretend.

The most controversial issue at stake is the so-called rule of 85, which allows local authority workers to retire on a full pension at 60, if their age and years of service add up to the magic number. At first sight, that perk looks difficult to defend. After all, the retirement age for members of private-sector occupational pension schemes is now 65 in the vast majority of cases.

The Government is planning to raise the state retirement age, possibly to 67 or 68, to reflect increasing life expectancies. Why should council staff be treated any differently?

Well, I can think of two good reasons. The first is that if you employ staff and offer them a particular benefit, reneging on your word a few years later is guaranteed to cause a great deal of upset.

The second reason the strikers have a case is the myth of the level playing field. Sir Digby says private-sector workers are entitled to feel disgruntled when they see their public-sector counterparts retiring at an earlier age than them. But would this supposedly angry bunch - in fact, it's tough to find people who really feel like this - accept public-sector levels of pay in return for the chance to retire early?

That's why many public servants feel so angry about losing this pension perk. For years, the one consolation for many poorly paid workers has been that the reward for long service - you would need 25 years in the job to retire at age 60, for example - has been a slightly cushier retirement deal.

Not that the rule of 85 guarantees a generous pension. Far from it. The average pension paid to a local government worker is currently just £3,500 - this is a less than generous £67 a week. For women retiring from local government, that weekly average falls to a sum of just £31.

Even after claiming the basic state pension on top of their occupational pension, many former public-sector workers are still eligible for top-up benefits because their weekly income falls short of the minimum income guarantee for pensioners, currently £109.45 a week.

The truth is that there is no easy solution to this row. It's true that council tax bills will have to rise to fund public-sector pensions unless reforms are made. But you can't simply ask staff to accept a deal that equalises their retirement age down to private-sector levels unless you are also prepared to equalise pay and benefits upwards.

* The 2005/6 tax year finishes on Wednesday, so savers and investors have just four more days to use this year's individual savings account (ISA) allowance.

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Cash ISAs are worth considering for anyone with savings in a taxable bank or building society account. Interest is tax-free and there is no risk to your money. With stocks and shares ISAs, on the other hand, your savings can fall in value as well as rise - plus, the tax incentive is much less clear.

By all means, invest if you are prepared to take a long-term view - five years at least - but otherwise stick to cash.

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