Saturday, January 24, 2009

Don't Just Do It....

On Friday, several major companies closed their final salary pension schemes. Not to new staff - that happened ages ago - but to their existing people.

From now on then, I presume, those guys are on their own, bar what they've already accrued.

Contrast this with the position of most people working in the public sector, including, as it happens, my wife and my brother.

My wife is 33 and, if she pays in 7 percent of her salary from now on, the council will make sure she retires on about fifteen grand a year.

This is a `defined benefit' based on a percentage of her final earnings.

Likewise, my youngest brother (28) has just joined a council as an Environmental Health Officer. Of course, he's just joined their final salary pension scheme which offers a similar deal to my wife's.

About two thirds of final salary.

These kinds of deals were withdrawn by most employers a few years ago now on the basis that they had the potential to send them bankrupt.

Now just compare Katy and my brother's position to my own.

Speaking Up pays 5% of my salary (which is more than both of theirs combined) into a scheme which, I am told in jolly-sounding letters from my pension-provider, will pay me just over £3000 in current value when I retire.

This is because my pension, like most, depends on the performance of stocks and shares.

So the deal for me is this: I put in more money (lots more) than them. This money is all at risk (I could lose the lot, they have `defined benefits'). And that get a heck of a lot less in absolute terms at the end.

Scarily unfair. Indeed, I am sure even the likes of Dave Prentice or Mark Serwotka (heads of Unison and CPSA unions) can see that from a social justice point of view, things just don't tally.

Because what we are all heading for very quickly, therefore, is Pensions Apartheid. Fantastic lifestyles beyond 65 for those in the public sector. B & Q for the rest of us.

Hopefully, Katy's pension will insulate me from the fate of stacking loft-insulation, but what about everyone else?

The serious point I am making here is that it can't be healthy of have yet another major social cleavage opening up in an already deeply fragmented society.

Resentment, already being heard on the phone-ins, will turn into bitter anger.

The point being made on Five Live etc, quite understandably, is the people in the private sector tend to lose their jobs quicker and often have inferior terms and conditions of service(hours, flexibilities etc) than found in the public sector.

Urgent Government action is needed to address this. Indeed, the financial crisis may even force their hand.

This isn't impossible. For if big international lenders come to think that the UK Government might not be able to pay them back, we might, as a nation, simply not have the funds we need to pay for TODAY'S schools and hospitals, never mind the people who used to work in them!

The case then is very clear for a new deal on pensions. Firstly, make sure everyone is paying something in to a scheme on a compulsory basis. No arguments, we all put in.

And, secondly, the end of all defined benefit schemes in the public sector. Today. For ever. You get what you've put in so far, sure, but that's it. After that, it depends on how investments perform.

I am sorry to say this - because it will hurt my household too (Katy and I can work together on B&Q, on neighbouring aisles, perhaps) - but I sincerely believe that the country cannot afford this, either financially or socially.

The figures, you see, are truly frightening.

Did you know, for example, that there are more retired coppers now who recieve a pension than there are police officers in service?

This is because police officers, like fire-fighters and countless other groups, can quit after 30 years service on a good portion of final salary.

But what's really going to pile on the pressure are the retiring Baby Boomers. People born between 1945 and 1951.

This massive cohort are all coming up to in 2010. As a social group, they outnumber the generations after quite considerably.

And we are the ones charged with funding their retirements.

Unfortunately, the public sector in particular is packed with them.

Teachers, social workers, nurses and doctors, all of whom began careers in the sixties and seventies, all now clocking off at the same time.

It just can't be done. And our current politicians will make sure it isn't done, yet.

Gordon Brown will simply not take on the unions this side of an election, especially if he's going to try for a pay-freeze in the public sector (necessary in my view).

The Tories might promise reform but won't want to alienate the public sector vote by being explicit (though they will be ones who eventually do it). The Lib Dems will, as ever, call it as it is, but neither will they win.

So, for a couple of years at least, this will go untouched. But watch 2010-2015. The clamour for change will become irresistable.

And this week's news of the end of final salary pensions in the private sector will be seen as the Beginning of the End for Pensions Apartheid.

I might as well buy my orange overalls now.


Anonymous said...

Oh, boo hoo - poor you with your salary which is more than your wifes and brothers combined. Maybe spare a thought for those people who have poor pension prospects AND low salaries - I'm sure you can find more than a few of those within your own organisation.

Anonymous said...

You obviously are being paid too much, if you have had the time to work this out instead of working for your charity.

Anonymous said...

Mmmmmm, me thinks some people are bitter and resentful about your success Craig - and that of your organisation.

Your comments regarding public sector pensions are bang on - its a nice perk of being a pulic servant; that the country just cant afford anymore.

A lot of us grew up in Thatcher's years and then we were subjected to big smiles and new labour... One thing we should have all learned is that if you want to be successful (and its up to you what you judge to be success; money, family, principles, benevolence whatever) you have to get off your behind and make it happen.

So stop whinging about other peoples salaries you sad people!

Anonymous said...

Yes, I can can almost smell the sour grapes from here....Let's get a little real about this. Craig's was primarily making a good point about public sector pensions, rather than just whinging about his own situation. Surely that much is clear.

Anonymous said...

Yes, boo hoo indeed - oh poor you Craig that you can even consider putting £800 a month into your pension - isn't that about what someone on minimum wage takes home in total? There are far greater injustices in the pensions situation than the difference between well-paid and well-pensioned police officers and well-paid and slightly less well-pensioned charity CEOs. Low paid public sector workers should have some security in retirement, as should low paid private and third sector workers. The rest of us should get over ourselves and count ourselves lucky we can afford to buy houses, save, travel and have any hope of a semi-ok quality of life in retirement.

Anonymous said...

I must say I agree with posters 1,2 and 5 - I am rather outraged that you would moan that you will have a small pension - the very fact that you are lucky enough to be able to spare £800 each month says that you are very, very lucky indeed. Perhaps you should spend some time considering how much worse it would be were you on minimum wage - taking home around £800 I would think...

Craig Dearden-Phillips said...

Good to see so many comments from my public sector audience.

Firstly, where did £800 a month come from. I actually put aside just under £300. £800 is what I WOULD NEED to set aside to match someone in a safe, middle management job in a council (possibly you, Anonymous?).

Yes, I realise I am lucky. In global terms we are all are, of course. I am seeking merely to point out, by my own example, what a gulf exists between the privileged system in the public sector and that outside.

Alas the state of public finances probably means that this will all change in the next few years as the state struggles with its own insolvency...