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

Junior DBA (SQL Server, T-SQL, SSIS, SSAS) London - Finance

£30000 - £33000 per annum + Benefits + Bonus: Harrington Starr: Junior DBA (SQ...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Senior Project Manager

£60000 - £90000 per annum + Bonus: Harrington Starr: Global leading Energy Tra...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Day In a Page

Read Next
Indian Prime Minister Narendra Modi addresses the nation on the country's Independence Day in New Delhi, India  

With Modi talking tough and Sharif weak, the India-Pakistan love-in could never last

Andrew Buncombe
At the time of the investigation Patrick Foster published a statement on Twitter, denouncing the “unnecessarily heavy-handed police investigation”  

Long-term bail allows lazy police and prosecutors to leave cases to gather dust

Oliver Wright
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment