Green Party shares right wing view of public sector pensions
The Guardian today reports Green Party research that claims the taxpayer is “subsidising” the pensions of public school teachers. No doubt all left thinking Guardian readers are now suitably outraged.
But there’s a problem. If you think the state is subsidising some members of a pay-as-you-go public sector pension then you have to think that they are subsidising all of them.
This is Taxpayers’ Alliance thinking.
Pay-as-you-go public sector pensions collect contributions from employers and employees and put them into the general Treasury pot. Pensions in turn are also paid out from this. This is why they are called unfunded pensions – not because no-one pays for them, but because they do not have their own funds invested in equities and other assets.
This is good for both pension scheme members and the state. If the government had to run a pension fund for its employees then it loses in two ways.
- First it has to pay the costs of running a fund and underwriting its investment risk.
- Secondly it has to pay employer contributions up front into the investment fund rather than retaining them. If they did not go into the general public spending pot then then the state would either have to raise taxes or borrow more.
Because the state gets the benefit of employer contributions it is only right that it pays a return on them. You can look at unfunded pension schemes as members lending their contributions to government and getting their pension in return years later. Pension contributions are calculated on the same actuarial basis as those in private sector schemes.
For all kinds of reasons sometimes the net flow of contributions into public spending is higher and sometimes lower than the cost of pensions in payment. So some years there is a net cost to government (as there is at the moment) and some years a net benefit (as there has been in the past, and as currently in the NHS scheme).
This does not represent a subsidy, but is simply the way that pay-as-you-go schemes work – as recognised in John Hutton’s report which calls for such schemes to continue.
The Green Party is right to say that it would cost private sector employers more to run such a scheme, but that just shows the advantage of unfunded schemes and why we should retain them in the public sector.
The progressive position should be to argue that this kind of benefit should be extended to more private sector employees. This what SERPS used to do. It could be done today with special bonds for pension schemes.
Of course it is a bit weird that public school staff can take advantage of the efficiency of unfunded pension schemes, and not those who have lost their public sector scheme by being contracted out. And one can ask whether public school employers are paying a proper share of the cost of the administration of the teachers scheme (ie whether all admin costs come out of employer contributions.)
But this is not the issue raised by the founder of the Green Party’s Trade Union Group. Instead he simply echoes the right wing attacks on subsidies in public sector pensions. He may argue that they are justified for state school teachers, but our argument is they are not subsidised.
I’ve got a lot of time for some people in the Green Party, but in attacking public school teacher pensions Noel Lynch unwittingly attacks all teacher pensions.