Are public sector pensions really gold-plated?

You can usually tell when the British press have stumbled onto a big issue that strikes a chord with the public - not only is there a rash of stories on the theme but there is usually an emotive word or phrase which crops up in all the headlines: scrounger, fat cat, asylum seeker, hoodie, dodgy expenses etc Recently "gold plated" pensions supposedly awarded to public sector workers have been in vogue.

As an article just published on our main website ("Prospects for the UK State Pension") explains, government attempts to control the state pension are only part of the battle to stop the UK's long term finances collapsing. The growing amounts they pay to retired public sector workers pose almost as great a risk; the system is forecast to be in deficit by 14 billion pounds a year within the current decade.

Some economists and ministers call the final salary pensions paid to public sector retirees unaffordable and unjustifiable; a time bomb ticking under the already rickety national finances.

But union spokesmen defend the pensions referring to their members as mostly "low paid" and resisting calls for pension contributions made by their members to be raised and for pensions to be based on average career, not final salaries.

"Public sector workers already pay a sizeable amount into their pension schemes year in, year out," said one. "All workers deserve a good workplace pension, whether private or public sector."

Sounds reasonable but in reality the private sector pension system has been eroded for years under attack from public policy and low returns in the equity and bond markets (themselves largely the result of government interest rate policy). Low interest rates, touted as a great way to revive the economy, are actually a transfer of wealth from savers and pensioners (anyone who doubts this should check out the current annuity rates) to bail out debtors, including the government. Why should the public sector be shielded from these realities?

The argument that public sector workers are low paid no longer really stacks up. The Labour years were generous to public sector budgets and mostly went on increased salaries. 38.000 public sector employees get over £100.000 a year. The average pensions received seem quite low (see table below) in some jobs but these averages include people who have worked for a short time in the public sector and are not the rewards for full lifetimes of employment.

My own view is that the government should honour the commitments they have made to public sector employees so far - many of these have worked for much of their careers with lower salaries in times gone by when public sector pay did lag behind. In future though they should move, as many private sector, employers have, to defined contribution, fully funded pension schemes which do not pose a threat to future taxpayers.

Public sector pensions (England, Wales)
Worker	% salary paid*	Employer contribution*	Pension age*	Average pension
* Depending on scheme Source: Independent Public Service Pensions Commission report, government departments
Police	9.5% - 11%	24.2%	55	£14,000
Firefighter	8.5% - 11%	14.2% - 26.5%	55 or 60	£12,000
Teacher	6.4%	14.1%	60 or 65	£10,000
Military	0%	29.4%	55	£8,693
NHS	5% - 8.5%	14%	60 or 65	£7,000
Civil servant	1.5% - 3.5%	3% - 18.9%	60 or 65	£6,200
Local government	5.5% - 7.5%	13.20%	65	£4,044