Opinion: The progressive case for aligning pension ages across the public and private sectors‏

The government is pressing ahead with plans to align pension ages across the public and private sectors. By 2020, both men and women in the private sector will have their retirement ages aligned at 66. But if the public sector is left unreformed, many people working within it would still be able to retire with their public sector pension available from the age of 60 or 65 (depending on whether they are male or female).

There is a progressive case to be made for aligning the public and private sector in this respect. Recent research has shown that currently the average salary paid in the public sector (from Policy Exchange and reported in the Daily Telegraph) is higher than in the private sector. There was a fair bit of argument at the time, especially about the claim in the Telegraph that the public sector was better off to the tune of 40%. There are different ways of looking at this but even data from the ONS last year showed that public sector workers are on average more than £2,000 per year better off than those in the private sector. At the very least, all indicators suggest there is a difference and that public sector workers are better paid currently than private sector workers on average.

This post from Public Finance last month tries to put this difference into context. They rightly point out that it is difficult to compare public and private sector workers:

Employees in the public and private sectors perform hugely different roles. Their gender make up is quite different as around two-thirds of the public sector workforce are women. The skill mix is quite different and a larger proportion of public service employees require professional qualifications (for example, doctors, nurses, teachers, social workers).

Neither the private sector nor the public sector is homogenous. The private sector has the largest number of the highest-paid employees (in finance and business services) and the largest number of the lowest-paid (in retailing, hotels and restaurants and cleaning). Many of the lowest-paid roles in the public sector have been outsourced to the private sector, which lowers average pay in the private sector while simultaneously raising average pay in the public sector.

So on this reading, the public sector contains a lot of highly skilled and on average consequently better paid employees. The private sector as well as containing high paid employees also contains many low earning ones. This is where the crux of the progressive argument lies. It is not progressive for the private sector to be made to retire at the age of 66 whilst those working in the public sector can retire earlier. This state of affairs is effectively a subsidy from the lower earning private sector workers to their higher earning public sector counterparts. That is regressive.

Some may argue that the current state of affairs with private sector workers earning less on average than the public sector is a temporary situation. This may well be correct and the historical fluctuations would predict at some point this will flip over again. But there will still be many millions of very low earning people in the private sector paying taxes and having to retire at 66 (or later as the age increases) and hence the regressive imbalance would still remain.

For the public sector to be excluded from the new pensions settlement that the majority of the country is having to adjust to will be unsustainable in the medium to long term. Progressives of all parties and none should be able to unite around that principle at the very least.

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15 Comments

  • Liberal Neil 21st Jun '11 - 11:35am

    Quite right Mark. There is no reason, in general, why workers in the private sector should have to work longer so that those in the public sector don’t have to.

    There are some specific jobs in both sectors where it will be unrealistic to expect people to keep doing them until they are 66, but there is no reason they can’t be moved into less physically demanding jobs.

  • no no no no. for the qualifications public sectors workers have they are low paid!!!!!!! low paid work has been outsourced to private companies (cleaners,cooks etc). we should be looking at the bankers of this world, who are best buddies to the coalition, and the francis maudes with his 4 homes telling us that £4000 a year is luxurious.

  • “This state of affairs is effectively a subsidy from the lower earning private sector workers to their higher earning public sector counterparts. That is regressive.”

    Progressive relates to taxation that increases as a proportion of the tax base. Progressive/Regressive aren’t just words you can use to justify your own personal tastes. Besides, what exactly do you mean by lower earning private sector workers subsidising higher earning public sector workers exactly? Given that higher earners will not only contribute a greater amount in tax during their lifetimes, but a greater proportion of their income (progressive taxation), then it is the low earners that are in reality being subsidised trhoughout their lives, in that they receive more from the state than they pay for through taxation, e.g.health, education, etc. I’m quite happy with that redistributive state of affairs, but to suggest that low earners in the private sector are subsidisiing the lifestyles of higher earning professionals is a gross distortion (as it is when the tories/lib dems claim that low earning non-graduates are subsidising people going to university – it is in fact a lie).

    As for the argument about people in the public sector earning more: you’re looking at the qualification levels and professional standards required and then completely ignore that evidence. To make a fair comparison you need to look at the pay and conditions of similarly qualified people in both sectors and you will almost always find that people in the private sector enjoy a higher pay for the same job. Furthermore, a suitable retirement age is not simply about physicality – the jobs that really wear people down are ones that involve dealing with lots of emotional stress – e.g. teaching, social work, health services. There are plenty of jobs that are physically demanding that are not at all taxing emotionally and intellectually – indeed it could be argued that many such jobs leave the employee in better condition by their retirement given the lack of stress and the greater physical exercise involved.

  • Malcolm Todd 21st Jun '11 - 1:01pm

    To suggest that ‘private sector workers have to work until they’re 66 but public sector workers can retire at 60 or 65 is something of a canard. You’re comparing the occupational pension scheme of the public sector with the state retirement pension available to everybody – public and private alike. If you compare the public workers’ pension schemes with anything, then compare them with equivalent schemes in the private sector. Certainly, the public workers have a better deal in that respect than most in the private economy, and there is a debate to be had about how these pensions are to be afforded and who should pay for them. But don’t pretend that public employees “get their pensions earlier” than the private sector – they get their state retirement pension at exactly the same age; and most (surviving) private sector pension schemes pay out earlier than 66 too.

  • “I specifically make the point that precisely because the two groups are different (that the private sector contains more low earners) the current situation is regressive and unsustainable.”

    This is very muddled thinking.

    The traditional view is that on average more generous pension schemes in the public sector act as a compensation for less generous pay. (The statistics you quote don’t address that issue because they don’t compare like with like.)

    IF that view is correct, then it is only a compensation, not an advantage. In that case, people doing similar jobs are being treated equally in the two sectors, and your claim about “regressiveness” has no basis.

    If you’re really interested in fairness, you should be trying to work out whether public sector workers ARE being treated better or worse overall than private sector workers doing similar jobs, by looking for some more meaningful statistics. As it is, you just seem to be using meaningless statistics to support the party line.

  • Malcolm Todd 21st Jun '11 - 4:19pm

    I’d be interested in the evidence for “most”, Mark. Certainly, however, you can’t baldly claim that “By 2020, both men and women in the private sector will have their retirement ages aligned at 66” without acknowledging that this is really a reference, not to retirement, but to qualification for the state retirement pension, which applies equally to the public sector. If it’s true that most private sector pensions are explicitly tied to the state pension age, let’s have the evidence for that; but this article seems to me to elide two distinct (though of course not unrelated) issues, in a way that implies that the state currently decrees an earlier pension age for its own employees than for the private sector.

  • If I remember rightly isn’t it the case that BASIC salary is higher in the public sector. When one takes in to account bonuses and overtime private sector pay is higher.

  • Philip Rolle 22nd Jun '11 - 12:45am

    “Progressive” is the new “Shout loud here – argument weak!”

  • Interesting that my experience of the private sector saw whole swathes of people retiring at 50 up until the law changed and not it is rare anyone goes past 55 – that is the problem with generalisations!!!

    I know also of people who have retired and carried on working for the same company so pick up two ‘wages’.

    I work in manufacturing, and the idea that only the public sector have early retirees is not sustainable

    Probably noone in the private sector will do this as much in the future due to the general rubbishness of pension provision in the private sector (apart from the bosses) – perhaps the problem is generational rather than between sectors but the Tories would never admit that their core 60+ voters have had the best of it would they

  • Chris Riley 22nd Jun '11 - 8:56am

    Mark,

    In that case, do you support salaries in the public sector being increased to match those in the private sector? Because, as you well know (or ought to) when comparing jobs like-for-like rather than using the spurious Policy Exchange comparison so beloved of the Right, public sector employees get paid less than their private counterparts for doing the same job. So – and I think this is where you need a reminder – people in the public sector get better benefits to compensate.

    So, Mark, do you think it’s appropriate that public sector workers should be compensated less than private sector ones, and if so, why?

  • While it is true that in some sectors of the private sector the Normal Retirement Age, (i.e. the age at which an employee could collect a pension without actuarial reduction) was 60, particularly in the finance sector, for most men employed in the private sector the NRA has been 65, whereas for women until the mid 1990s it was 60. However as a result of a EU court case back in the early 1990s the NRA had to be equalised for future service. The result was that most women working in the private sector found their NRA raised to 65 overnight. Of course this change went relatively unnoticed because few of the women affected worked in companies with powerful trade unions, and the trade union movement in general showed little concern for such people.

    As has been said already, it is difficult to compare many jobs in the public and private sectors, but again, apart from the finance sector, wages for clerical work in the private sector are mainly determined by local wage rates. This means that in areas in which the public sector employs large numbers, private sector wage rates will be little different from their public sector equivalents, yet the NRA is likely to be 65 for private sector employees but still 60 for public sector workers.

    Moreover, even if it were true that the private sector pays marginally better than the public sector, the real cost of pension provision, because of demographics and a host of other reasons, is now very high, irrespective of whether the employee works in the private of public sector. However, the difference in cost between a NRA of 60 and 65 is roughly 25-30%, and I suspect few private sector employees command such a pay premium over their public sector comparators.

  • Malcolm Todd 22nd Jun '11 - 11:42pm

    Actually, as somebody who used to work in admin in local government, I’d say that clerical work is one area where local authorities at least do pay better than the private sector. I used to think about going for private sector administrator jobs when the dysfunctional nature of the city council was getting me down, but for jobs with a level of responsibility commensurate with my own, the pay was often less than that of the admin assistants working under me.

    I think it’s true that people with high-value technical or professional skills were less well paid than their private counterparts; but what the latter’s pension rights were like I don’t know.

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