Danny Alexander's lies and hypocrisy about public sector pensions

Submitted by martin on 18 June, 2011 - 12:52
Pensions

On 17 June, Lib-Dem minister Danny Alexander chose the Tory Daily Telegraph to try to lecture public-sector workers that their pensions will be cut, no matter what.

He declared: "millions of other taxpayers are asking why they should be asked to pay more tax to fund them – especially as those in the private sector often receive considerably less or nothing at all by way of employer contributions".

What millions? Private-sector workers know that their pension schemes have been trashed (and sometimes, as by Robert Maxwell, looted) by their profit-hungry bosses, not by public sector workers.

No tax rise to subsidise public-sector pension schemes is even under consideration. Where hundreds of billions of taxpayers' money have been siphoned to - without consultation or thanks - is to the banks, to make good the damage of their follies running up to the financial crash of late 2008.

"It is unjustifiable", continued Alexander, "that the taxpayer should work longer and pay more tax so that public sector workers can retire earlier and get more than them".

In fact, what happens with current levels of unemployment is not so much that people work longer, as that millions are thrown into poverty from as early as their 50s when they lose an established job and can find no other employment except maybe scraps and bits of work at very low wages.

Alexander's attempt to turn private-sector workers against the public-sector workers who, as yet, still have more civilised pension schemes, is an attempt to divert attention from the huge and growing inequalities, not between private and public sector workers, but between the majority and the ultra-rich.

Bosses of top 100 companies now rake in an average of over £4 million a year - 145 times the wage of the average worker. On top of that, each of those bosses will have a large additional income from investments.

In the last two years alone, the richest one thousand people in Britain - just one thousand of them - have have gained £137 billion, a 53% rise in their stash to £396 billion. (Sunday Times Rich List).

Compare that with the total of £81 billion which the coalition government is cutting from public spending. That figure overestimates the real cuts, because it includes cuts which socialists have no objection to: reductions (compared to previous estimates) of the interest paid on government debt, and decreases in military spending.

From benefits, the Coalition government’s planned cuts over the next four years total £18 billion, and from education and other local services, £16 billion.

Those figures mean drastic social damage, but they are small compared to the increase in wealth of just the top one thousand people over one or two years.

Bank profits totalled about £30 billion for 2010. Bonuses in high finance and in other industries totalled £22 billion this year. The loot is much bigger than the cuts.

Why should we accept any cuts to our pensions, our jobs, or our services when the bosses and bankers are raking it in?

Alexander is hypocritical, too. MPs really do have gold-plated pensions. They have a final salary scheme with a choice of accrual rates. MPs can choose to contribute at 1/40th, 1/50th or 1/60th - while public sector workers are being told they must settle for 1/80th or 1/100th.

The public sector unions are campaigning against Government plans and measures which:

  • Have already (from April 2011) changed the basis on which pensions, once they start paying out, are uprated for inflation, from "Retail Price Index" to "Consumer Price Index". CPI averages about 0.8% a year lower than RPI. 0.8% a year less, after maybe 20 years of retirement, adds up to over 15% less.
  • Will (from April 2012) increase the pension contributions taken out of workers' wages by around three per cent of wages. The increased contributions mean no improvement in pensions - rather the opposite - so this amounts to a three per cent cut in pay.
  • Will increase the pension age, even for those workers who kept a pension age of 60 when in 2005 the unions won a shoddy deal with the Labour Government making the pension age rise to 65 for new entrants but stay at 60 for workers already in the schemes.

The Government plans and measures hit teachers especially hard, since they are less likely to opt out of their pension scheme than, for example, local government workers, and more likely to build up a long record of service giving them a relatively sizeable pension.

But the issues here affect all workers, directly or indirectly, in one way or another. Any worker who thinks that the public-sector workers' plight is no concern of hers or his is as foolish as a worker would have been in 1984-5 to say "why should we back the miners fighting for job security, when ourselves have seen our jobs become so insecure?" The miners' defeat greatly increased job insecurity for all workers.

The Tory press often says that public sector workers have "gold-plated" pensions. It's more like public sector workers having decent china plates from which to eat a meagre diet in old age while other workers make do with cracked and chipped ones, but public sector pensions generally are better than those (except for top managers) in the private sector. That is because unions are stronger in the public sector, and better able to resist the general trashing of workers' pensions in recent decades.

Worsening public-sector pensions will not help private-sector workers. It will do the opposite. It will push down the benchmark.

The Government is being more cautious about cutting state pension provision, and have even talked (only talked) about some possible improvements in patches there; but if they win easily on public-sector pensions, they will speed up cutbacks in state pension provision, too.

The change from RPI to CPI uprating covers not only public-sector pensions but also one element of the state pension (the "State Second Pension"/ SERPS) and all private-sector pensions unless the scheme explicitly mandated RPI uprating. The Government has talked of legislation which would override private-sector pension scheme mandates and impose CPI uprating on them even if the scheme previously specified RPI.

The increases in pension age affect everyone. The Labour Government already set plans to raise the state pension age. The Coalition Government has speeded them up. Last October, the Government announced that it would speed up the increase in women's pension age, so that it will reach 65 by November 2018.

The state pension age will then increase to 66 for both men and women from December 2018 to April 2020. Chancellor George Osborne has talked of further increases in state pension age which could push it up to 70 before the middle of the century. Meanwhile, Pension Credit for the poorest pensioners is being frozen for four years from 2011.

Comments

Submitted by martin on Thu, 23/06/2011 - 09:57

The change from RPI calculation to CPI calculation affects not just the trend of your pension after you retire, but the "accrual" rate of your future pension.

On Saturday 12 February Robert Peston published the following calculation. Notice that it also affects workers in private sector pension schemes:

On Friday [11 February] the Department of Work and Pensions published a new so-called impact assessment of the costs for members of defined benefit pension schemes of the government's decision that many of these schemes should up-rate their benefits in line with lower CPI inflation, as opposed to RPI inflation...

The calculation may upset the millions of people affected by the changes, since it says that the effect of the move from RPI to CPI for protecting the value of future pensions is to reduce the value of their benefits over the next 15 years by £83bn...

This is how the DWP puts it: "The main cost of this policy is to members of private sector defined benefit pension schemes who will see the anticipated value of their pension rights reduced and the value of their total remuneration package reduced in the short term."

The value of this reduction in pension rights and total remuneration equates to a significant £5.7bn per annum.

And for 2m relevant active members of pension schemes, there is a reduction in their annual rate of pension accrual - which is broadly the same as a pay cut - of between £2,250 per year and £2,500 a year on average.

In other words, they will be up to £2,500 a year worse off right now, on average. That is the implied fall in their total remuneration, including the value of the pension promise made to them by their employer.

But they won't feel it till they retire - when their pensions will be up to 12 per cent lower than would otherwise have been the case (in real terms) in 2027 and 20 per cent lower in 2050.

The corollary of course of the pain for those saving for a pension in a defined benefit scheme is an £83bn windfall for the companies and other institutions which sponsor these schemes.

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