So, another week, another threat of strikes and another attack on local government pensions.
If anything concerns me about the whole debate it is the ridiculous language used by people on each side of the debate. The tendency of people from the Government to slip into the tired language of: ‘generous’ public sector pensions is as dangerous as the hyperbole of those from the Union side who claim the Government plan another ‘pension raid’.
Before I get caught up in a ‘pox on both your houses’ rant here is the most important local government pension stat courtesy of the Hutton report into pensions:
Average local government pensions are £4,000 for men, £2,800 for women.
Now, this amount may possibly be higher than if those same individuals were working in different jobs and receiving private sector pensions or purchasing their own pensions on the open market.
However, we need to get away from calling this a ‘generous’ pension.
And, it certainly isn’t ‘gold plated’ (except for those at the very top of the organisation maybe and that’s for another day).
Despite this, for a pension scheme to be sustainable in the long term it needs to be funded well enough so that the benefits we all rely on are available when we retire.
The local government pension scheme is, in theory, a fully funded final salary pension scheme. The concept behind this is that there is enough money put aside each year that when you eventually come to retire the ‘pot’ will have grown enough that the final payment you are due each year will be available.
This means huge contributions for the local authority, fairly substantial contributions for the staff and a lot of work for actuaries!
Which is why I get a bit grumpy at the way this is all being treated. I am not a pensions expert but as I understand it there is general agreement that a fully funded final salary scheme is the way to go in local government. At the moment (thanks to Ruth Keeling and others) we also know that there is currently a hole in these funds that needs to be filled. If we agree on this then all we are arguing about (politely debating) is how this hole can be filled.
1) Increase employer contributions
2) Increase employee contributions
3) Reduce benefits (by reducing the accrual rate)
4) Ask people to retire later
5) A combination of the above
The unions might argue that at the moment local authorities should be working extra hard to ensure that they cover pension shortfalls due to the increased crunch on salaries. Local authorities might argue that a later retirement age is the fairest response to shifting demographics and politicians might point out that reducing benefits slightly might allow the maintenance of the scheme for all.
I’m not sure what is best but if we all have the same aim in mind (we seem to) then maybe we could have a slightly more rational debate about how we’re going to get there.
Pensions are way too important for all this bluster to end up discouraging people from taking one out.
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