Wednesday, 16 November 2011

Striking for gold-plated peanuts

Pinched from Private Eye
It was announced today that unemployment for young people aged 18 - 24 rose to 1.02 million in the 3 months to September. The total number of unemployed people is the highest since 1994 and the number of women out of work increased by 43,000 to 1.09 million, the highest level since February 1988. It's usually the case that as unemployment rises, industrial action drops, and it's infuriating the government that that pattern doesn't seem to be happening now. Instead the country is facing the possibility of the biggest strike for 80 years on 30 November. How come?

As you'll know, one of the main reasons for the strikes is the attack on public sector pensions, which even BBC journalists have been heard to describe as gold-plated. Employees will be required to work longer and pay more to get less. Is this an injustice? Union members feel angry that the government has reneged on its deal with them, that they are not getting what they have been promised, in some cases over decades. It seems quite reasonable to be angry over broken promises, especially ones with such wide-ranging consequences that will affect their standard of living for the rest of their lives. That sense of injustice must not be underestimated.

To try to get the general public on board, politicians talk about the excellent pensions public sector workers will still have after the changes, especially when compared to the private sector. Let's deal with the private sector first:

Much of the private sector did once have better pensions, often based on final salaries, until the 1980s, until politicians stuck their noses in. The Chancellor of the Exchequer, Nigel Lawson, noted that in the financial boom of the 1980s, pension funds had large surpluses, so he allowed employers to have contribution holidays, which many took up, in some cases not contributing for years on end. Some like Robert Maxwell even stole from their pension funds. That's an extreme example of a view of pension funds as dead money that would be better used for the business, but those who only stopped paying into (as opposed to stealing from) pension funds clearly had the same mindset. What Lawson and the employers chose to forget is something we are all told when we take out an investment - that they can go down as well as up. And so it came to pass - they went down.

The next body blow to private pensions was one of Gordon Brown's first decisions as Chancellor of the Exchequer, which was to impose tax upon pension funds which had been previously exempt. These two measures by chancellors from both major parties, accompanied by an economic downturn in which investments weren't performing so well tipped many funds from prosperity in the early 1980s to an inability to meet their responsibilities by the mid-1990s onwards. All caused by a combination of both parties viewing pension funds as cash cows, either for the employers or for the Treasury, and many employers happily along for the ride.

One notable exception from the crisis in private sector pensions is the provision for chief executives and company directors, who looked after themselves by happily awarding each other massive pensions and large pay-offs from final salary schemes that somehow survived the pension crisis, while slashing the schemes for their own workforces. Fred Goodwin's final salary pension from the Royal Bank of Scotland pays him in six days what a retired executive officer (junior manager) in the civil service would receive in a year, providing s/he had completed 40 full years service (no career breaks or periods of part-time working). In contrast, Fred got his pension after 26 years in the industry between qualifying as an accountant in 1983 and retiring at 50 in 2009.

"Excellent public sector pensions."  Having messed up private sector pensions for the workforce (except for the top executives), politicians then turned their attention to public sector pensions. Gold-plated? Judge for yourself: the average civil service pension is £4800 a year, and its local government equivalent is even less. This is what the government wants to cut, and it's hardly surprising that public sector workers oppose having to work longer and pay more to get even less.  Yes, there are some in the public sector who get big pensions: politicians for starters, but also top civil servants (the Sir Humphreys) and local authority chief executives, but these represent a tiny proportion of the public sector and are in no way typical.

Some of the public, taken in by the propaganda about gold-plated pensions, believe that it's about time the feather-bedded public sector faced the real world like the private sector. If you apply that argument across the board, then logically you'd end up in a situation in which no one would get a pension more than the smallest in the private sector, which wouldn't benefit anybody. There is no doubt that private sector pensions have been treated disgracefully by governments and employers, but how does doing the same to the public sector help anyone? Some public sector staff are saying that if these changes are implemented, they will have to drop out of the pension scheme as they can't afford the extra contributions. If this happens, all we'll be doing is setting up a demographic time bomb whereby millions more from both the public and private sectors are forced to rely on state benefits in retirement. In what way is this "living in the real world" and planning sensibly for the nation's future?

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