The slanging match between the public and private sectors continues. This time, the heated discussion is on the subject of pensions. Due to the size of the numbers involved, this argument is going to run and run.
Most public sector pension schemes (with a few notable exceptions like the local government schemes) are unfunded. That means that the public sector workers may typically benefit from a buy now, pay later attitude. On joining they signed up for a particular deal, but commentators claim that they have not made enough contributions to make that deal sustainable, leaving it for later generations to sort out. The government is now saying will be too onerous to pay out.
When it came to power in May 2010, the Con/Lib coalition promised to have a good, hard think about what to do about pensions, thanks to the perceived unfairness that the private sector felt at how their own retirement planning was panning out. Accordingly, it promised a commission to look at this issue, which former Labour minister John Hutton has agreed to chair.
The Public Sector Pensions Commission on the other hand is a joint effort by the Institute of Economic Affairs and the Institute of Directors. Led by Peter Tomkins, from the Institute of Actuaries, it is an independent organisations and is separate from the new government’s new appointed body, but has previously welcomed the arrival of John Hutton’s commission onto the scene and has publicly expressed its interest in what they are trying to do.
Tomkins has compared the public sector pension system to Ponzi schemes, after complex fraudulent “investment” scams that were only uncovered during the credit crunch when the flow of money into them was not so great.
Having had nine months to examine the issue, the Commission has produced a paper called “Solutions to a Growing Challenge”. Rather than being a general swipe at the way in which public sector pensions have been dealt with, the report proposes practical solutions.
The solutions proposed include raising the retirement age, increasing contributions and gradually moving away from a defined benefits scheme towards a defined contribution based set up. These moves are controversial in themselves, but will be even more unpalatable given the atmosphere of cuts and redundancies that looms over public sector employees.
