Wednesday, November 26, 2008

Fire Fighting

Yes, except this Fire Fighter (its been on HELL of a week for me, hence no blogs) can't retire at 48 on a full pension. Nor, however, do I have to run into burning buildings, granted.

There has been surprisingly little fuss about how well protected people in the public sector are not only from recession but also from the poverty in old-age. At one time, we all had good pensions care of excellent private and company policies funded by a rising stock market.

That is history now. To buy a pension at 65 that will give me, say 20k per annum I will need a fund running into hundreds of thousands of pounds which, in turn, would require me to put about £800 per month aside, or 20% of my income.

However, were I to join the NHS or a local council, I would simply pay about 7% of my salary into the scheme and have a defined return of about half my salary upon retirement. Or, if I was on the money I am today at 65, about 30k.

Can this be right? Is it healthy to have a two-tier system in which one section of society enjoys a massive privilege by dint of the sector they have chosen to make their career?

I think it is wrong that you can't find a company pension scheme for love nor money while my younger brother, who has just joined a council in the north of England at age 29, be retiring on twice what I will, while probably finishing work on half my earnings and having put far less aside.

Worryingly, the pensions timebomb is nowhere on Alistair Darling's long-range projections. Today, there are more retired policemen taking a pension than serving officers. Soon, the same will be the case in other emergency services, local government and the NHS. Public Sector Baby Boomers will get their final slug of luck and retire happy and secure, again at the long-term expense of the rest of us.

For some reason, this isn't being flagged as the scandal it is. In my view we should close all defined benefit pensions for the public sector to new entrants and reduce entitlement to a third rather than a half of final salary so that we can actually afford to pay all these people.

This will hurt me too by the way. My wife is a public sector worker who will do very well from the scheme. But I think if want social cohesion we can't afford to have a class of people retiring affluent at 60-65 while the rest of us work into our 70s. Its just not right. The Unions, with their puported interest in social justice, need to say this too. But they won't, of course.


Rob said...

I do support your views on this and find the deadwood eating up middle management salaries in the corridors of County Halls forever galling. However, gut reaction time, is the answer not to cut the pension rights in the public sector, but rather to promote them widely AND tie them directly to performance. Net result could be the increase in skills and ability being pulled into the sector, the easing out of the undeserving wannabee golfers and most importantly a resurgent, creative and efficient public sector?

Rob Greenland said...

Interesting post Craig. This is on my mind at my moment. As you know I work for myself and have just got my pension statement through - near to a fifth of the value lost this year - and that's before the worst of what went on in the last two months.

I think more transparency is the key. My HR Manager wife tells me about Total Reward - recognising the cash value of all the benefits you get in a job - including a generous final salary pension.

If that became more widespread, two things might happen. People in the public sector might stop moaning about how badly paid they are. And it might also highlight the high rewards that some very mediocre people are receiving, even though their take home pay may be average.