From the TUC

It’s Britain’s directors who have caused the public/private pensions divide

06 Jul 2010, by in Pensions & Investment, Public services

Today’s see the launch of the latest attack on public sector pensions. This one comes from a so-called independent Public Sector Pensions Commission set up by  the Institute of Directors and the Institute of Economic Affairs.

This is another example of the clever pincer movement used so well by the shrink-the-state right to attack public sector pensions. First they stir up the politics of pensions envy by contrasting the non-existent pensions of two in three private sector workers with the supposed gold-plated pensions of public sector workers. Then they snap the pincers shut with some big scary numbers about the future costs of pensions.

In this post I look at the first arm of the pincer – the difference between public and private sector pensions.

Of course it is unfair that public sector workers get better pensions than workers in the private sector. But who brought that about?

Public sector pensions have not become more generous, indeed their value was reduced in a series of negotiations under the last government. Only a few weeks ago – and clearly a little late for the IoD as it only merits one passing mention – the budget made a very significant change to the value of public sector pensions by changing their indexing from RPI to CPI. This will nibble a bit off pensions most years – and breaks the pre-election pledge not to change accrued benefits (ie those already built up). Over time those nibbles will mount up.

The real changes in private sector pensions has been the retreat by employers (ie directors) from providing not just decent pensions but any pension at all. The real pensions divide is within the private sector. Most get nothing. Top directors (FTSE100) do very well, thank you very much, even during the recession. According to TUC Pensions Watch between 2007 and 2009:

  • The average transfer value of a FTSE 100 Director pensions went from£3 million to £3.4 million.
  • The rise in transfer values for those with the biggest pension entitlements at each company was from £5.3 million in 2007 to £5.6 million.
  • The average accrued pension went up by 28 per cent from £193,000 p.a. to £247,785 p.a
  • The average accrued entitlement for the director with the highest pension in each company went up by 32 per cent from £320,000 £421,326 p.a.
  • For those with DC schemes the average contribution went up by 69 per cent from £86,000 to £145,220
  • The average received by those with the highest contribution in each company was £147,000 in 2007, rising to £179,540 in 2009, a rise of 22%.
  • The majority of directors in both 2007 and 2009 had a pension age of 60.

The close network of right wing think tanks who have provided the arguments for this report also like to say how much higher public sector pay is than private sector pay.

We can report some progress here as the report has backtracked on this and almost accepted the IFS analysis that:

Overall, pay levels in the public sector are probably not significantly out of line with those of similar workers in the private sector, once you take into account factors such as their age, education and qualifications. IFS Green Budget 2010

This of course confirmed our analysis

Without producing any statistics they still allege that over time public sector pay has gone up more than private sector pay. The evidence is much more complicated, and I know of no work that controls for qualification and full-time/part-time over time.

They also concede that the lower paid and lower skilled do better in the public sector on average while the higher paid and more skilled do better in the private sector – thus emphasising the point that we always make that the gap between top and bottom is smaller in the public sector.

This must have been a wrench for some members of the Commission, and they will have to rewrite some of their own reports.

2 Responses to It’s Britain’s directors who have caused the public/private pensions divide

  1. Tweets that mention It’s Britain’s directors who have caused the public/private pensions divide | ToUChstone blog: A public policy blog from the TUC —
    Jul 7th 2010, 12:49 am

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  2. The big scary numbers in the IoD report | ToUChstone blog: A public policy blog from the TUC
    Jul 7th 2010, 9:46 am

    […] IoD sponsored report on public sector pensions combines pensions envy with the standard deployment of big scary numbers about the unaffordable costs of public sector […]