Leading article: Public sector employees will have to pay more

Monday 21 February 2011 01:00

Public sector pensions were always going to be one of the hottest potatoes the Government had to handle, which is why they were farmed out to a review – and not just any review, but one headed by a former Labour minister, John Hutton. Now the (Conservative) chair of the Local Government Association, and a (Labour) member of the LGA executive have sent a joint warning to the Chancellor about increasing pension contributions for local government employees. They contend that a combination of staff cuts and low-paid workers deciding to opt out could make the scheme as a whole unviable, bringing a higher bill for all tax-payers as retired employees were thrown back on means-tested benefits.

Their argument can be understood, but it should not be accepted without challenge. Public sector employees have been well served by their pension scheme, which provides higher benefits for lower contributions than most private-sector schemes – especially now that most private-sector final salary schemes have closed. When public-sector workers were paid less than their private-sector counterparts, a case could be made for this; but that is no longer so either. Unless pensions are to become even more socially divisive than they currently are, public-sector employees are going to have to contribute more.

The question should be how this can be done. Trade unions insist that, because many in the public sector are relatively low-paid, their pensions are minimal. But the same applies in the private sector. It is no justification for retaining the status quo. The case has to be made that, even with higher contributions, public-sector pensions will remain excellent value and more secure than many private schemes. The Government must also ensure that – as with work and the Universal Credit – saving into a pension will always pay. This may not be easy if inflation continues to rise.

Given the very high pay of many senior local authority executives, there could also be a case for levying much higher contributions at the top, so as to moderate the rise further down. On this, if it seriously believes there is a problem, perhaps the LGA executive might invite the trade unions to make common cause.

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