From the TUC

Public sector pensions again

09 Dec 2008, by in Pensions & Investment, Public services

(edited December 10th as the first draft read as if written in too much of a hurry – that’s because it was)  

Mary Dejevsky has a piece in today’s Independent on public sector pensions. It’s much more thoughtful than the usual media attacks on public sector pensions as while she uses the language of pensions apartheid she concludes by attacking David Cameron’s comments that I blogged about ten days ago:

“Where he is wrong is in accepting that the system will have to be levelled down. Britain, for all the sobering vicissitudes of the past year, is a rich country. It is absurd that its private-sector middle class should face penury in retirement. Absurd, too, that something as crucial as pensions – anyone’s pensions – should be so dependent on the vagaries of the market. If the Conservatives cannot do better than this, they risk inheriting a private sector in terminal decline and a vocal class of pensioners so poor that their care-home fees will have to be met out of the depleted public purse.”

And if you want a flavour of just how hostile some on the right are to a decent retirement income for public sector workers, you should read the comments. Isn’t it a little strange that any left critique of inequality is dismissed as the politics of envy, but attacks on nurses’s pensions are not?

But Mary doesn’t look properly at the differences between public and private sector pay and pensions, perhaps because of her exclusive concern for middle class pensions (as if it were ok for the working class to face penury in retirement). Many of those who comment on her article get this completely wrong.

This is an issue where looking at means or medians simply won’t do. The difference between well-paid public servants and  their private sector equivalents is quite different to that between the low-paid.

This is because the traditional claim that public sector workers are paid less than their public sector counterparts, but get a pension as part compensation, does not work for low paid jobs.

Low paid jobs in the public sector are slightly better paid than low paid jobs in the private sector. In addition very few low-paid private sector workers have any access to a pension scheme (as you see from chart 15 on page 49 of the PPI report (pdf) on public sector pensions).

This is down to a number of factors.

  • Unions are good at organising low paid workers in the public sector where employers are at worst neutral and often encourage unions. This is not the case in most of the private sector (though there are exceptions such as Tesco who also offer a DB pension).
  • Society generally expects the public sector not to exploit its workforce in the same way that Britain’s two million vulnerable workers face a grim life at the hands of some pretty apalling private sector employers.

So it is not true that low paid public sector workers get a pension to compensate for lower wages than they would get in the private sector. They get a decent pension and somewhat better pay because the public sector is a better employer. This is not to say that they are anything other than low paid or that they are going to retire into a life of luxury, simply that it is monstrous to demand that low paid workers in the public should be treated as badly as the lowest paid private sector workers.

It is a bit more complicated among better paid workers. The PPI use Office of Manpower Economics figures to show that among men (figures are not available in the same way for women) the highly skilled earn 5.5 per cent less in the public sector than they would in the private sector (controlling for occupation, education and other factors). In contrast (and in line with above findings for low paid workers) the unskilled earn 7.2 per cent more in the public sector than the private sector. 

In other words highly skilled workers earn less and unskilled workers earn more in the public sector, as it has a flatter salary structure than the private sector (and a good thing too).

So it does look as if well paid public sector workers would get more pay in the private sector, and can legitimately see a decent pension as compensation for that.

But at the bottom end of the wage range public sector workers do better with pensions and with pay than their private sector counterparts because the public sector is a more just employer.

To leave with one further set of stats from the PPI report. Public sector men – who are more likely to work full time and in better paid jobs – are paid 2 per cent less in the public sector than the private. Public sector women – who are more likely to be lower skilled and have part time jobs – are paid a significant 4.7 per cent more than private sectior women.

This may indicate that the public sector not only has a flatter salary structure, but also has less gender discrimination in its pay (though I hasten to add that does not mean that it has been eliminated!) 

I for one don’t mind paying a fair share of tax to ensure that the public sector treats its low paid and women workers better in pay and pensions than they would fare in the private sector.

4 Responses to Public sector pensions again

  1. Peter Annison
    Dec 10th 2008, 2:11 pm

    A further thought. People with no private pension, or just a small one, contribute through their taxes to the so-called gold plated pensions of the public sector.
    This applies especially in the case of local authority pensions, which are the only funded public pension schemes, and where the employer’s contributions come out of the Council Tax. [Police and Fire Service pension contributions have also been collected via the Council Tax precept, but this has become so onerous that I understand the government has proposed moving the responsibility to the Treasury].
    We thus have an unfair and fundamentally unjust situation where the private sector ‘pension poor’ are being required, via their Council Tax, to subsidise the public sector ‘pension rich’. A sort of inverted form of Robin Hoodism!

  2. Nigel Stanley

    Dec 10th 2008, 6:39 pm

    Of course people without pensions should be cross, but that resentment should be directed at those who have denied them pensions.

    Low paid workers contribute to gold-plated directors’ pensions almost everytime they spend any money.

    At least from 2012 everyone other than the very low paid will be enrolled into a pension with a compulsory employer contribution (unless they opt out.)

  3. Robert Day
    Dec 29th 2008, 11:41 pm

    I’ve commented on another strand about pensions and won’t repeat those comments here. But if I can pick up some of the comments about the analysis of private vs. public sector wage levels: there is a generally held view in some quarters that recent years have seen a “public sector pay bonanza” (must have passed me by, but there you are). My experience has been that this has been mainly due to inflated salaries at middle and senior management levels to attract “the best talent” from the private sector!

    This has two knock-on effects:

    1) the money to pay for this comes from suppressing salaries lower down the food chain; and
    2) these dynamic ex-private sector managers are the ones that then tend to come up with spiffing wheezes to save money, like not wasting time encrypting personal data when it’s going to leave the building, or using private sector couriers with an imperfect record on package delivery, or cutting overheads (staff) and then wondering why the Revenue (for instance) ends up with a million unanswered letters.

  4. gigger
    Jan 29th 2009, 1:02 pm

    im 20 and so by the time I get anywhere even close to a retirement age there will be well and truly nothing left in the pot! my solution to this? dont bother with any of it! work hard spend hard, whats the point in earning a decent wage, putting loads of cash away for the future only to see it dwindle by the fund managers messing up the stock markets, and to be penalised for having over a certain amount of savings. My plan? WORK WORK WORK like everyone else, then spend spend spend, claim poverty at retirement age, sell the house and buy another underneath a flight path thus ensuring someone will eventually pay over the market rates for it to expand the airport, take a little job at the council, accidentally fall over an office plant and live the life of luxury on a 8million quid health & safety payout.

    no1 better nick my plan innit