Leading article: The real pensions divide

Share
Related Topics

When John Hutton was commissioned by the Coalition to produce a report on public sector pensions, he was accused by tribal Labour politicians, including John Prescott, of "collaborating" with the enemy. The interim report released by the former Work and Pensions Secretary yesterday, even though it rejects the common assertion that public sector pensions are a "gold-plated" trough, is unlikely to cool the ire of such critics.

Mr Hutton considers a series of radical options: for scheme members to pay higher contributions, for later retirement and for payments to be made on the basis of a member's average earnings over their career (rather than the salary they are drawing when they retire). The public sector unions have given the report a chilly reception. And it is certainly the case that, if enacted, these reforms would be painful for many public sector workers.

But, sadly, Hutton is right when he argues that reform is necessary. Final-salary pension schemes were sustainable in an era when workers lived, on average, for 20 years after a retirement. But life expectancy in retirement is now pushing 30 years. Final-salary pensions have almost disappeared in the private sector in recent years as firms have struggled to cope with the liabilities. Such generous schemes now exist almost exclusively in the public sector.

While some of the apocalyptic forecasts over the scale of the burden on the public purse are scaremongering, it is true that continuing to make payments in this manner will impose a growing strain on the national finances. The Office for Budget Responsibility has estimated that the gap between contributions paid in and pensions paid out is on course to double over the next four years to £9bn. Even with the reforms already enacted – raising the pension age for new members, switching to a CPI index rating rather than RPI – public sector pensions are on an unsustainable trajectory.

Further, the gap between the state of public and private sector pensions has grown too great to be justifiable. The argument that better public sector pensions are a form of compensation for lower public sector pay is not convincing now that pay levels between the two sides of the economy have moved much closer together.

But though public sector pension reform is necessary, the same is true of private sector schemes. Mr Hutton's report, rightly, points to the vast discrepancy between the pensions of most public sector workers and a minority of highly paid senior managers. Yet that discrepancy is just as wide in the private sector, where senior managers tend to receive huge pension contributions (often as a way of avoiding income tax). Sir Fred Goodwin, who stepped down from the Royal Bank of Scotland in disgrace two years ago, with an astonishing £700,000-a-year pension, was not atypical. And the increasing casualisation of private sector workforces – with employers shrugging off their responsibility to contribute to pensions – is another source of unfairness.

For the sake of equity, the public and private sectors need to move closer into line. But for the sake of equity, a spotlight should also be shone on private pension schemes. That means the huge gulf between the benefits of top managers and the rest and the failure to pay pension benefits to casual staff. It also means the high fees charged by many private pension fund managers. Some managers charge annual fees of 1.5 per cent, which might sound modest, but over a lifetime of contributions can result in more than a third of the pot being siphoned off.

There is inequality in pensions. But the most significant divide is not between public and private sector workers, but between those who are benefiting from the present arrangements and those who are not.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped commission: SThree: Does earning a 6 figu...

Recruitment Genius: SEO Executive

£18000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: New Lift Sales Executive - Lift and Elevators

£35000 - £40000 per annum: Recruitment Genius: A challenging opportunity for a...

Day In a Page

Read Next
 

Errors & Omissions: A widow’s tale with an unexpected twist

John Rentoul
 

For all his faults, Russell Brand is utterly sincere, something politicians should emulate

Janet Street-Porter
The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss