Wednesday, September 22, 2010

My Piece from today's Guardian on public sector pensions

Pensions are on many public managers' minds, particularly those involved with potential social enterprises that are about to "step out" of the public sector.

For some of these, pensions are a big headache.

There are several public sector schemes, each a little different, but all have three things in common. One is that they are a "defined benefit" – you get a proportion of your final salary linked to inflation. The second is that the employer (the state) contributes up to 20% of the employees' salary – much more than is now usual in other sectors (0%-6% is fairly common). The third is that most schemes are in deficit – meaning that the payouts are not covered by those paying in. The bill for this is picked up by HM Treasury, and the most recent official estimate of the total cost of these unfunded liabilities is £770bn.

All this is highly relevant for the divestment of public services to social enterprises and the third sector. If the government insists that former public sector workers are offered a "broadly comparable" pension once they move into these new bodies, then we have a potential show-stopper on our hands. Taking on these pension commitments creates a huge obligation for the third sector.

I spoke recently to a chief executive in the third sector who had received a bill for £360,000 from the local authority pension scheme for four members of staff the charity had taken on from the public sector a few years earlier. The bill reflected a deficit in those employees' pensions that had built up over the whole of their employment with the local authority, not just the three or so years with their new employer. The deficit had, in effect, been dumped on the charity. Just imagine the damage this causes to a medium-sized charity. And this is aside from the resentment felt by other employees in the same organisation, who do not have these kinds of deals.

Any charity today looking at taking on state services may therefore face a local authority insisting it took on responsibility for funding staff pensions.

This is why the third sector and new social enterprises have to read the small print on pension deals. The handling of long-term pension liabilities is absolutely critical.

Lord Hutton's forthcoming review of pensions is a one-off opportunity to deal with this imbalance between public section pensions and those in other sectors. Most observers are confident that Hutton will raise the employee contribution. But it is unclear whether he will recommend the abolition of the Treasury's Fair Deal guidelines. If he did, it would enable social enterprises and third sector organisations to move new staff out of public sector schemes and into money-purchase schemes, and to pay pensions at existing charity levels, usually about 6%, without generating future liabilities.

It would also mean that all employees in an organisation would be on a similar deal, which is better for workforce morale. Former public sector employees would still be on a slightly better deal than existing staff, however, because the transfer regulations, Tupe, would give them more favourable sick pay and other benefits. But the really big differences created by the pensions gap would be eliminated.

Some charities have reached an understanding with public sector bodies so that staff moving out of the public sector will stay in their existing pension scheme under "approved provider" arrangements. This will often be underpinned by a short to medium-term commitment from commissioners to meet the costs of the pension scheme, now and in the future. But this is only useful for as long as commissioners can afford to pay. Once this ceases to become the case, it automatically becomes the charity's problem too.

Better to avoid that by seeking to get people coming out of the public sector on to money-purchase schemes as soon as they leave state employment. Let's hope Hutton's review allows this to happen.


cantona said...

And I thought Cap'n Bob was dead, but here he is alive and well and robbing public sector workers of their hard earned pensions.

Why don't you just have them clapped in irons and bring back serfdom, that should help their morale and motivate them to deliver quality public services.

But I've got some news for our latterday Victorian mill owner, most local government pensioners get less than the princely sum of £4000 from their gilt edged final salary schemes and over 60% of the local government workforce are part time low paid women. Hardly a kings ransom for a lifetime of public service.

It may also surprise old CDP but most pension schemes in local government are in surplus not deficit as he states. The only schemes in trouble are those where Craig and his ConDem chums have in the past raided the pension schemes in the good times or took pension holidays to save the employers money.

Pensions are deferred pay and are a contract between the employee and employer to provide a decent income in retirement. If the naked entrepreneur wants to break that deal then I suggest he gives us our money back first with interest and then we can decide to invest it for our benefit and not have him and his social enterprise mates rob it from us to make profits at the taxpayers expense.

Naked entrepreneur! Naked greed more like. I suggest you get your bloated snout out of the public sector trough and go and earn a proper living. Try being a care worker and see how you like that!

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