Public sector pensions have received a lot of attention over recent years, with labels like ‘featherbedded’ and ‘goldplated’, and how unfair it is for the tax payer to carry this burden. The reality is far from that, and it is heartening to see John Hutton’s interim report recognising that.
I’m a nurse in the NHS and pay into the NHS pension scheme, paying a sizable chunk of my salary each month. NHS Employers (the body which represents NHS employing organisations) estimate that the average qualified nurse can expect just £7,500 a year, but for over half of all women NHS workers their pension is estimated to be less than £3,500. That hardly seems generous, but the average woman Local Government worker can expect just £75 a week when they retire.
How about the burden on the treasury? My NHS pension (like the Armed Forces, Teachers and Civil Service pensions) is a ‘pay as you go’ or unfunded scheme, meaning that rather than contributions going into an investment fund which pays for pensions in the future, the fund is held by the Treasury and the pensions contributions of today’s staff pay for the pensions of today’s pensioners. It has been painted that this means the Treasury paying out billions in pensions, but the fact is that last year £2billion more was paid in through contributions than was paid out in benefits. A surplus which the Treasury uses to fund other programmes. The Local Government Pension Scheme on the other hand is a funded scheme, so that it is held by trustees and invested to get a return to pay future benefits. The contributions in that scheme last year outstripped expenditure by £6billion, and even in the down turn made £3billion from investments. When both these schemes are in surplus, how are they unaffordable?
The short term saving that Hutton points to is to increase employee contributions, but this seems completely unnecessary given the health of the schemes. In the NHS pension, increased contribution from workers would in essence be a tax to go into subsidising the Treasury. For the future the taxpayer is already protected by the agreement unions reached with employers (brokered by Alan Johnson) which means that employers’ contributions are capped at 14% and additional costs will be borne by workers if needed.
Increased employee contributions would be a further attack on public sector workers standard of living, particularly in the context of a pay freeze and inflation running at around 5%. Taking money out of public servants’ pockets will hit their spending power and confidence and the wider, still fragile, economy.
The other recommendation, to look at moving away from final salary pensions, would undoubtedly lead to lower pension payments on retirement. This is exacerbated by the Budget decision to base such calculations on the CPI rather than the RPI, which will, as it is consistently lower, cost pensioners thousands of pounds.
This ‘pay more, get less’ approach may have a negative impact on the health of the schemes, if it led to the number of contributors dropping off. This is recognised by Hutton. It will also lessen a key incentive to work in the public sector, often for less than staff with equivalent skills and qualifications in the private sector.
The reforms to pensions under the last Government, agreed in partnership with Trade Unions and Employers, have left pensions sustainable and affordable. New scheme members already retire at 65 and employee contributions increased, with cost sharing agreements in place. There are improvements that could be made, the plethora of pension funds in the Local Government Pension Scheme could be merged to save money and maximise investments, but it should be recognised that finances are sound and any changes need to bring staff along with them and be delivered in partnership with their Trade Unions.
Nurses care for the public in their old age, shouldn’t we be supported in ours?