Opinion: Trade unions, pensions and Labour

I have been following very closely the pensions dispute as it unfolds and one of my concerns is public sector workers could lose a lot of pay through strike action in what I am starting to believe is a political strike which they cannot possibly win.

I am also a little surprised at the way the government have handled things so far and, as a former national union representative, I have been amazed at times by their ineptitude.

Further confirmation I am afraid that the Tories and sadly many in our party don’t understand the real world of industrial relations.

So why do I believe this is a political strike?

Well, Mark Serwokta the PCS leader is a socialist with an executive dominated by the Broad left and he has been keen to engage in a battle for some time the only thing holding him back in my view is his members who are not as keen on confrontation as he is.

The NUT General Secretary is very similar: she is a past supporter of the Socialist Alliance and has a very left wing activist base but sadly for her like Serwotka her members are not quite on the same page.

Hence the annual calls for action that come from the NUT conference very rarely result in anything on the ground.

To be fair to them, their political stance means they were willing to fight both Labour and this government but of course their hatred of capitalism and their apparent belief that the financial crisis has led to the government proposals means they are going to be very unwilling in my view to negotiate a compromise.

They are also likely to be overplaying the effects of any changes to gain the support of their members in a prolonged battle.

The other unions [Unite, Unison] and the TUCs Boss Barber are different because they are totally wedded to Labour. Every move they make will be after consultation with Ed. This may in part explain why they haven’t joined the strikes just yet.

My own union the CWU has been totally silent largely because in 2007 they agreed to close the final salary pension scheme for all employees and raise the normal retirement age to 65.

This agreement came after 8 days of strike action and was brokered following intense pressure from Brown and Barber.

So I have seen at first hand how a union leader can have much more interest in serving Labour than he does the members.

Hence my fears for other public sector workers and the wider public who are bound to suffer from any prolonged dispute.

So my advice to Danny Alexander or any other spokesperson from the top of the party would be as follows:

  • Publicise much more the fact that public sector unions like CWU have already agreed radical pension changes under Labour.
  • Point out that certain union leaders are pursuing a different agenda: some because they are wedded to Labour, some because they would sooner call strikes than negotiate.
  • Don’t appear as strike breakers or red baiters. Leave that to the Daily Mail. Keep stressing a commitment to continuing with negotiations and the need for change.
  • Don’t rule out the use of arbitration or the involvement of an independent mediator to help resolve the issue. Bringing in someone like Hutton who wrote the report or another public figure outside the coalition could be a masterstroke in putting the unions and Miliband behind the eight ball.

So if Nick, Danny or any other Lib Dems want the views of someone who has a bit of experience in these matters then I would be happy to oblige.

If not, I hope my thoughts help other party members in understanding the issues.

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56 Comments

  • mike cobley 9th Jul '11 - 3:26pm

    “I hope my thoughts help other party members in understanding the issues.”

    Well, you’re not wrong there – so, to sum up, the unions can’t win, any socialist is by definition untrustworthy, never mind the issues over pensions and retirement age, just calm down and accept the inevitable. Did I miss anything?

  • Robert Price 9th Jul '11 - 3:51pm

    In the Palace of Versailles the right wing of the building would be occupied by those whose primary interests were looking after the wealthy elite, and by ensuring they stayed extremely wealthy and seperate from society. The left wing was occupied by those who wanted social justice and a system which shared the wealth more evenly. This is the basis of the phraseology of right and left wing politics.

    The workers in this case have paid their pension contributions. They are now being characterised as taking from the country rather than simply requiring the agreed return on the contract.

    I’m an ex-shop steward who is a member of the Liberal Democrats. I am astonished by the right wing article written here by someone who is obviously so right wing he believes what he is saying is politically the middle ground.

    It is an increasingly obvious pattern of propoganda that the Liberal Democrats are merely intended to agree with far right principles. Some of us in the party do not believe the liberal ideal to be along these lines. We believe the Liberal ideal be one of consideration of the genuine evidence (not just what is produced by News International), then policies designed for the betterment of the people of this nation (rather than those desigend to keep extremely greedy rich people happy in the hope they’ll bung a few quid our way).

  • I think you must have skim-read. Socialists weren’t called untrustworthy, just that they had political motives for strikes so would likely ignore negotiations.

    He didn’t day that the strikers couldn’t win either. If you read the end again you’ll see that he recommended using a mediator to help with negotiations.

    To criticise someone fairly, it’s important to have an accurate grasp of what they’re actually saying.

  • No mention of ATL and the fact that the strike was the first national strike in their history. No mention of the fact they are the most moderate union. No mention of the large support amongst the ublic for the strikes. No mention of the fact that we have the some of the worst pensions in the developed world and that the ‘reforms’ will bring down the level of public pensions to the abysmal standard of treatment of workers in the private sector.

    “Don’t appear as strike breakers or red baiters. Leave that to the Daily Mail. ”

    That says it all about the Lib Dems – we’ve got the Mail on our side, so no need to publicise our shared opinions ourselves.

  • Andrew Suffield 9th Jul '11 - 4:26pm

    It’s not socialists that are untrustworthy, it’s the halt-dozen people who are both union leaders and socialists.

    a political strike which they cannot possibly win

    I’ll take this one further and say: which they don’t even expect to win. I predict that they will drag the issue out for as long as they can, until their members start to look a bit unhappy with all the lost pay from strikes, and then just let it fizzle out without really being resolved. Their goal here being to make the government look bad (which, to be fair, some people in the government seem to be cooperating with).

    This approach will be internally justified as “strengthening our negotiating position”.

  • Gareth Jones 9th Jul '11 - 5:00pm

    Excellent article Dave. I have divided opinions about this strike action; changes to Pensions is a legitimate reason for strike action but the current system is unsustainable. I agree the best way forward would be talks and compromise; are we not still the party of industrial harmony and industrial democracy?

  • @Gareth Jones

    “the current system is unsustainable”

    The Hutton Report argues that the cost of public sector pensions will gradually fall from its current peak of 1.8% of GDP to approx 1.4% over the next fifty years. If the current cost has been sustainable over the last few decades and pensions are going to get cheaper, why will the system be unsustainable in the future?

    Incidentally, I have not spoken to a single public sector worker who doesn’t accept that a higher retirement age is reasonable (schemes such as the Local Government Scheme have already moved to 65). Many also accept that final salaries may have to be replaced by a career average. A few even accept that public sector workers should pay more (I personally favour a standard rate across the public sector). What the public sector objects to is paying more, paying for longer AND receiving less.

  • What the public sector objects to is paying more, paying for longer AND receiving less

    Welcome to world most of us folks live in – no-one I talk to supports the public service strikes on this – who doesnt work for them.

    My fear is that the whole Pensions deal will collapse & staff made to make their own provision in the future.

  • I know I snipe at you guys a lot, but it really does make me sad that so many LibDems seem to have bought the Daily Mail “all unions are scum” and “public sector workers are all lazy” talking points. You’ve certainly fallen for the “unsustainable” excuse about pensions, except, as Nigel points out above, they are actually quite sustainable indeed.

    Your government just doesn’t *want* to sustain them. The Tories have declared war on the public sector (as well as students, sick/disabled people, single mums, the unemployed and anyone else who is weak) and you’ve decided to go along with it.

  • Dave Warren 9th Jul '11 - 7:18pm

    The best outcome would be a compromise which could be best achieved in my view
    by the government pursuing a course of action similar to the one I suggest.

    In the meantime publicity must be given to the fact that a number of union leaders agreed
    pension changes under Labour and would be doing so now without strikes if they were
    in government.

    All industrial disputes have to come to a conclusion but they can also get very long and bitter,
    when that happens everybody loses.

  • Andrew Suffield 9th Jul '11 - 9:20pm

    The workers in this case have paid their pension contributions. They are now being characterised as taking from the country rather than simply requiring the agreed return on the contract.

    Nobody has an issue with the workers here. The union leaders, on the other hand, are acting in really dodgy ways that don’t seem to be in the best interests of their members. (They will probably stop short of pushing things so hard that they get unelected)

  • Andy Dowland 9th Jul '11 - 9:26pm

    “Publicise much more the fact that public sector unions like CWU have already agreed radical pension changes under Labour.”

    This bit is the reason why the unions are annoyed right now.

    Between the early 90s and the mid 00s it became clear that life expectancies was going up – and the age where public sector workers were entering the workforce was also going up. This meant that there was a danger of there not being enough money going into the system to pay out the defined benefits. That meant the then Labour Government and the unions had to get together to work out a solution. Remember’s it’s not in union members’ interest to have a bankrupt pension scheme.

    I’ll talk about the NHS scheme as it’s the one I know about but as far as I know the other schemes like the post office scheme is similar.

    Employee contributions increased for most staff from 6.0% to 6.5%, senior staff were increased to 7.5% and 8.5%, low paid employee contributions stayed at 5.0%

    A new pension scheme was set up with retirement age 65, 1/60 accrual rate, commuted lump sum (£1/year off pension = £12 lump sum) that all new employees from 2008 go into.

    Existing employees could choose to move to the new scheme or stay on the old scheme, retirement age 60, 1/80 accrual rate plus 3/80 lump sum.

    Employer contribution rate stayed at 14.0% and there was a cap placed on that. Whatever happens to life expectancy the increased (or decreased) cost will be borne by the employers. If that means increased contributions, higher retirement age or reduced benefits will be a matter of negotiation at that time.

    Sorry for boring you with the details. The important thing is the National Audit Office checked that deal out and said it was sustainable. In 2009/10, NHS Pensions collected £7.8 billion in contributions and sent out £6.3 billion to existing pensioners and transfers out. That surplus goes back to the government and you can see from the figures that the NHS Pension Scheme has been a net contributor to the government every year since 1995/96 (as far as their information goes back to)
    Source: http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions_FOI_Requests/Sinar_figures.pdf

    So we’ve got a deal, Hutton acknowledges that the deal is sustainable and there’s no need to change the deal based on current information. So why change? What is the argument that they are unaffordable based on?

  • Andy Dowland 9th Jul '11 - 9:47pm

    On the previous post when I said there was a cap and the increased costs would be borne by the employers I of course meant the employees. Under the 2006-08 deals the public sector (and the few private sector employers included) will never pay a higher percentage contribution.

  • Dave Warren 9th Jul '11 - 10:56pm

    The Post Office changes were agreed in 2007 and in addition to the TUC endorsing so did the schemes trustees which include union nominees [CWU and Unite].

    Post Office workers took 8 days of strike action to end up with a worst pension than when they started along with
    a worsening of other terms and conditions.

    I don’t want the same thing to happen to other public sector workers. I have led and been involved with numerous
    strikes as a union activist, the worst kind are the ones where the end result is perceived by the members to have
    been totally unsatisfactory.

    The 2007 Postal strike fell into that category. In fact some have argued it destroyed the union as an effective industrial force.

    It is in the interests of our party and the unions to resolve the current impasse through negotiation/arbitration.

    If the dispute becomes prolonged and bitter it won’t matter what the facts are the employer [in this case the government] will dig in and might even impose the changes they want.

    I wasn’t convinced that the Post Office changes were totally necessary but they happened because of the
    situation I describe above.

  • The new nasty party. Enjoy your moment in the sun because you’re a long time dead.

  • Andy Dowland 9th Jul '11 - 11:21pm

    Dave, what you seem not to get is that the rest of the public sector did go through negotiations at about the same time as the post office workers. We’ve got a deal which the Lib Dems are now going back on. I don’t understand why, It’s not because they are unsustainable, or because they are unaffordable so why is Danny Alexander putting the boot in.

  • I’m sorry Dave, you’re one of the few here I generally agree with but many pension schemes were changed under the last Labour government, the teachers have been asking for the figures, that’s why the ATL, a union who never strike, have been on strike, they want the facts so they can negotiate a settlement.

    Unison aren’t on strike because the government have said the LGPS, as a funded scheme, is different from other schemes and they are negotiating a different deal, this is perfectly responsible by both sides, even though the LGPS changed under the last government. That’s the reason they haven’t been on strike, it has nothing to do with their support of Labour, they went on strike under a Labour government over the pensions issue.

  • Gareth Jones 10th Jul '11 - 1:14am

    @ Andy – It was my understanding ( and I admit I could be wrong) that Danny Alexander was trying to reach a compromise and the Tories wanted to put the boot in. Similarly some of the Trade Union leaders want a fight for political reasons rather than getting a reasonable deal for their members, as Dave highlights above. When I said the current system was unsustainable I meant of the three points above (more years, more payments, and receive less) the unions will have to give some ground. I believe to ask all three is not only looking for a fight but unfair. The key is talking and reaching a compromise. As I pointed out in my first post this could be an example of the Lib Dem’s putting their principles in to action, hopefully for the benefit of all.

  • When the NAHT is balloting on industrial action and the BMA is considering the same any reasonable observer should understand that this is not a dispute which can be confined to the “usual suspects” as suggested.

    The point which angers many teachers is that a deal was agreed, with lower benefits, a couple of years ago – the compromise has already been reached. It is affordable in the long term and is only being changed so that the deficit (on paper) can be eliminated before the next General Election.

  • Andy Dowland 10th Jul '11 - 9:04am

    @Gareth It may be that the Tories are behind Danny’s words. Still, unilaterally announcing what the government is going to do during negotiations seemed to be provocative. I had the chance to hear Dave Prentis (UNISON) talk on the subject on Friday and believe that he’s completely sincere. No serious Trade Union leader (I don’t count Bob Crow as serious) is going to want to lead members into a strike. But there is the suspicion that the more reasonable we get, the more unreasonable the Tories are getting. Francis Maude and Danny Alexander both get final salary pension schemes that are significantly better than anything in the public sector with the possible exception of the armed forces officers scheme.

    Even if the proposed changes to the MPs scheme happen, MPs will be paying 5.5% of salary for a 1/60th accrual rate and a retirement age of 68. If Danny Alexander gets his way, a newly qualifed nurse will be paying out 9.7% of salary for a 1/60th accrual rate and a retirement age of 68. How’s that fair?

  • Andy Dowland 10th Jul '11 - 9:07am

    @Joe, it’s affordable in the short term too. the Local Government Pension Scheme (which includes teachers) makes a surplus of £1.8 billion per year, the NHS scheme has given the government a surplus of £9 billion in the last 15 years.

  • Hutton Report Reader 10th Jul '11 - 9:46am

    @Nigel
    “The Hutton Report argues that the cost of public sector pensions will gradually fall from its current peak of 1.8% of GDP to approx 1.4% over the next fifty years. If the current cost has been sustainable over the last few decades and pensions are going to get cheaper, why will the system be unsustainable in the future?”

    Initially I thought you had an important point here however having read the Hutton Report in full your comment is either mistaken or misleading. The peak will actually be 1.9% and the fall assumes the “implementation of reforms” and Hutton goes on to conclude “the general public cannot be sure that schemes will remain sustainable in the future.”

    In addition the fall is based on a real terms growth in GDP, i.e. pension costs still increase after the reforms, its only that GDP grows faster that leads to the percentage of GDP fall.

  • Mark Inskip 10th Jul '11 - 9:57am

    @Andy Dowland
    Your definition of a ‘pension fund surplus’ does not align with the rules that would apply to a private sector defined benefits scheme. You are looking at the money coming in from contributions today compared to the payments made, but today’s contributions need to be providing funds for future pensions of today’s employees (and past contributions should be paying or today’s pensions).

    Councils have to report annually on their individual deficits on the Local Government Pension scheme in the same way as private sector defined benefits schemes. Latest figures are for the year ending 31st March 2010. Birmingham City Council alone had a deficit of £1.65bn, the total deficit across all councils was over £70bn.

  • I’d like to add my support to David’s article. He did leave out some details that may have helped his case. The union leadership including Brendan Barber are by and large reasonable. They are wedded to Labour and will do what they can to help the party but they are also pragmatists who have been negotiating with both Labour and Conservative governments over this and other issues.

    Mark Serwotka on the other hand is a militant who seems to have his head in the 80s, whether this is because he is genuinely ideological or whether he is pandering to the small group of militant members who put him in position is beside the point.

    PCS is unaffiliated to a party because it represents the civil service and traditionally civil service unions are not aligned to a political party. It is the largest civil service union but it’s total membership is not very big. Serwotka has already scuppered a deal on the civil service compensation scheme and forced the unions to renegotiate under worse terms with the new government simply because he refused to compromise, forced a ballot and rejected the deal offered and negotiated at great length by all the other unions (including other unaffiliated unions). He has no real regard for his members, many of whom would have benefitted under the original deal but instead pursues an ideological agenda that is at odds with the best interests of his members.

    Serwotka is disliked and kept at a distance even among union leaders and whilst I’ve not been involved with the unions since before christmas I have no doubt that the other unions have been patiently trying to negotiate a reasonable deal whilst PCS have sat in the corner sulking like children, waiting for the right moment to call for ‘the biggest industrial action since the second world war’.

    The unions will not win anything through striking, not because I’m particularly opposed to strikes but because their membership is not big enough or committed enough to achieve anything other than relieving themselves of a few days pay and allowing Cameron to look Prime Ministerial as he faces them down.

    I agree the government has handled the issue badly but PCS (and by association the NUT) are as much a fly in the ointment of these negotiations if not more so.

    As a union member it made me angry to see that this man and his followers were able to hurt mine and my colleagues employment conditions for his own ends – partly because of this I’m glad to be out of the public sector and away from the pernicious influence of unions like his.

  • @Andy Dowland
    Similarly with the NHS scheme its also wrong to say that has a surplus. Look at the latest report from the Government Actuary on the NHS scheme;
    http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions/0300.pdf

    The deficit is shown on page 15 and is a massive £287.6bn. Though of course as an unfunded scheme the government could just ignore this figure and leave it to tax payers in 20, 30 or 40 years time to worry about (though not particularly far to today’s children who will be tomorrow’s tax payers).

  • Andy Dowland 10th Jul '11 - 11:01am

    @Mark Inskip – I agree with you, and there’s no pot of money marked NHS pension scheme, but that’s true for all governments and all businesses.

    If tax revenues reduced to zero, the government would go bust. If people stopped shopping at Tesco then Tesco would go bust. It’s reasonable for any business or government to assume future revenue otherwise they would never invest in anything.

    Under what circumstances are you thinking of that would mean taxpayers would have to pick up any deficit in the NHS Pension Scheme?

  • @Andy Dowland
    You wisely avoided trying to defend the intergeneration unfair question.

    On the question of an unfunded scheme and it being the same for all businesses then its simply not correct. Tesco or indeed any other private company could not legally have an unfunded defined benefits pension scheme, by law they must have an actuarial valudation of such a scheme and need to declare any deficit and take steps to address that deficit if it is too large (I’ll acknowledge that pension law is a complex area but I’d expect most people to understand the basics).

    Unfortunately due to a consequence of Brown’s tax changes and increased life expectancy large deficits have become commonplace and private companies have responded by shutting down DB schemes and instead offering only DC schemes. The government has instead decided, in line with Hutton’s recommendations, to stick with modified DB schemes.

  • Andy Dowland 10th Jul '11 - 11:57am

    @Mark Inskip

    The “intergenerational unfairness” is a red herring. The baby boomer generation and generation X are paying for the pensions of the current pensioners, then Generations X and Y will pay for the Baby Boomers, then Generation Y and the current generation will pay for Generation X’s pensions. I’m about 15 years into my NHS career and I don’t feel like I was lumbered with an intergenerational debt from the existing NHS pensioners. They’ve done their service and now they deserve not to be living in poverty.

    I know I’m not a liberal, but isn’t the idea of people saving for their old age a good thing?

  • Peter Chivall 10th Jul '11 - 12:08pm

    I agree with the comments about Mark Serwotka as a leader with a militant background, but his members have to ballot for strike action just like any other union and did so by a large majority. However, the % of junior civil servants who are members of his union is low. Civil service pensions may need reforming, if so a well-intentioned Government would avoid giving Serwotka ammunition by not making TINA-style speeches as the hapless Danny Alexander did.
    Christine Blower of the NUT may also come from a Broad Left background, but NUT strike rules are very complex. The National Executive needs authority from Conference (whose representative base is similar to the LD Conference and rarely supports a straight left line) in order to ballot members. They then need majorities nationally, at Local Association and at school level, some of them 2/3 majorities, before ANY members in a school can be authorised to strike (and there is no Union strike pay). To get nearly 90% majority on a 40% turnout means a bigger % of the NUT electorate than David Cameron got of those who voted last year! (and the NUT electorate includes 1000s of retired members like me who didn’t return their ballots because they believe only those who could be asked to strike should vote on the issue).
    Finally – what part of Socialist Worker, Militant Tendency etc. does Mary Bousfield belong to – whose Association of Teachers and Lecturers (largely represented in selective and independent schools) voted 80% in favour of strike action on a 36% turnout – that’s about 29% of the electorate compared to Cameron’s 23% support – led to them striking for the first time since before the 1st World War!
    What turned ‘Mr. Chips’ into a Militant is that the Treasury, with Alexander tagging along, want to demand an increased contribution of £1000+ pa from every teacher immediately while delaying retirement age and reducing benefits in order to gain £2-3bn to help offset the deficit, since unlike the Local Government Pension Scheme, the TPS is unfunded and all payments in or out go through the Exchequer. In effect, a £1000+ pa pay cut for the average teacher.
    If all those Daily Mail reading LibDems feel resentful about the pitiful pensions suffered by the private sector they should demand that all Company Directors should be in the same pension scheme as their employees and that no tax breaks apply to any other scheme they may want for themselves.

  • Peter Chivall 10th Jul '11 - 12:39pm

    @Mark Inskip. The £287.6bn figure for the NHS is derived from Table E on page 12. It is clearly stated there as a Liability, not a deficit. It is what would happen if the scheme collapsed because it became too expensive for all current employees to contribute to and they opted out of it. This is the expressed fear of many ATL members in the Independent sector who subscribe to the Teachers’ Pension Scheme and are worried if Coalition demands for £100 per month more from their salaries at a time when they are also starting to pay off student loans causes them to withdraw from the scheme and make it unviable. Maybe that’s what George Osborne and Francis Maude intend, and Danny Alexander is simply their fall-guy.

  • Peter Chivall 10th Jul '11 - 12:49pm

    @Mark Inskip. Many Government pension schemes are unfunded because a sovereign Government can accept the liability. The Government of a country is not run like Tesco plc and never should be. That does not mean that a fund like the TPS should not be in balance over a period. All the evidence is that this fund is in balance since the 2008 changes. the only reason to change it is to ‘raid the till’ to avoid increasing taxes as part of deficit reduction.
    BTW, if all unfunded schemes are unfair on Generation X, should the Coalition stop my OAP?

  • Mark Inskip 10th Jul '11 - 2:48pm

    @Peter Chivall
    The figure in table E is the ‘Past service liabilities’, the figure in table K is the ‘Deficit at end of year’, both figures are £287.6bn – no surprise, its an unfunded scheme. In a funded DB the deficit would be a fraction of the past service liabilities (or there could be a surplus).

    What it means is that if the scheme was closed tomorrow and no one was able to make further contributions, and therefore not earn further pensions benefits, the government would have to payout £287.6bn (in today’s money) between now and the last NHS pension scheme member dying.

  • Mark Inskip 10th Jul '11 - 3:22pm

    @Peter Chivall
    In one comment you state that we don’t need to worry about unfunded schemes because a the government will accept the liability.
    Then in another comment you say that there is a major threat that too many withdraw from these unfunded schemes and make them unviable.
    Care to reconcile these two contradictory statements?

  • Andy Dowland 10th Jul '11 - 3:50pm

    @Mark Inskip

    How likely is it that people are going to en masse pull out of the scheme if it’s not changed? Assume none. But I would pull out of the NHS scheme if I have to pay an extra £75 a month (3% of my salary) at a time when my wages are frozen for the foreseeable future, taxes are increasing and energy prices are going through the roof.

    So at the moment, the schemes are affordable and sustainable. There is no problem in public sector pensions. But the Tories and the Lib Dems want to destroy it, make the deficit worse in the long term and cause millions of people to stop providing for their old age. I really don’t see the reasoning behind it.

  • Mark Inskip 10th Jul '11 - 3:59pm

    @Andy Dowland
    Nothing wrong with the idea of people saving for their old age, its a very good thing.

    For unfunded public sector schemes then without reform it is true that the next generation (in both public and private sector employment) will have to fund the current generation’s pensions. Its not however true with funded occuptional schemes that one generation pays for the next. One generation makes contributions into the pension fund which the fund then invests to pay for that same generation when they retire. And that’s the difference.

    And because of rising predicted costs of paying for those future pensions contributions have been increased, future benefits reduced etc. Unfortunately its also meant that most in the private sector have been moved from DB to DC schemes. In the public sector which the government is bringing in reform there are no proposals to go from DB to DC schemes.

  • Andy Dowland 10th Jul '11 - 4:49pm

    @Mark Inskip

    On your first paragraph, I’m glad that we agree

    On your second paragraph, I do understand the difference between funded and unfunded schemes. but I don’t see why that matters. I have happily paid into the NHS pension scheme for the last 15 years. That money has gone to existing NHS pensioners. Are you saying that I don’t deserve reimbursement from the Government when I retire? When I was a child, I saw private pension schemes being raided by crooks like Robert Maxwell, I didn’t think that my money would be stolen by Danny Alexander.

    On your third paragraph you are completely wrong. The costs are predicted to rise till 2020 and then start to fall as the Baby Boomer generation passes on. The National Audit Office and Hutton both agree that the existing public sector schemes are completely sustainable as they are currently. Hutton does point out that predictions have been wrong in the past and might be wrong now, but that’s why the cap and share deal places that risk with the employees. Private sector schemes have closed to lower wage costs in a way that will not upset too many people, it’s not because they are inherently unstable.

  • Mark Inskip 10th Jul '11 - 6:30pm

    @Andy Dowland
    “I didn’t think that my money would be stolen by Danny Alexander”
    Now you’re being daft – no one is stealing your money, how do you raid an unfunded pension scheme?
    If the reforms go through as proposed then public sector employers will be contributing at a rate both significantly higher than when public sector occupational pensions were introduced and when compared to the private sector employers.

    “Private sector schemes have closed to lower wage costs in a way that will not upset too many people”
    There are plenty in private sector who are very upset at only having the option of a DC scheme and not a DB scheme.

    And as for Hutton, his final report states “The Commission takes as given the recent changes to public service pension schemes, including the use of the Consumer Prices Index as the measure of inflation and an imminent rise in employee contributions. These changes have reduced cost pressures, but have not addressed fundamental longer-term structural problems.” and lalter states “present schemes involve too much risk for government and the taxpayer.”

    Hutton makes a number of recommendations, which if adopted, show predicted costs falling from a peak of 1.9% GDP to 1.4% GDP (I notice an earlier comment claims these costs are before implementation of the reforms).

  • Dave Warren 10th Jul '11 - 7:33pm

    I am really pleased to have generated such a wide ranging debate.

    The main points I was trying to get across was that some union
    leaders are using the pension issue for political purposes.

    I didn’t say all just some.

    I went on to talk about others unions being too close to Labour I
    have seen this at first hand in CWU.

    There are plenty of examples of Unison taking a different stance
    depending on the politicians they deal with. Just look at their record
    on equal pay in local government!

    This dispute will have to be resolved and I would much prefer it to
    be by negotiation. If it turns into a prolonged dispute there will be
    no winners.

    Finally I reject the charge that I am anti union. I have been a union
    member and activist for all my adult life.

    I support the right to strike but like most union members would
    prefer to see negotiations and agreements.

    Strikes should be a last resort.

    What frustrates me is union leaders playing politics rather than
    representing their members.

    That is what appears to be happening over public sector pensions.

  • Andy Dowland 10th Jul '11 - 7:40pm

    @Mark Inskip I’m not being silly, I’ve paid into the NHS scheme for 15 years and my employer has put in more. If I had taken that money and put it in the bank then that would be worth about £50k by now. How am I now not entitled to the benefit that I was told I was paying for.

    Also please don’t misrepresent the Hutton report. Here’s the bit you are referring to.

    1.3 There have been significant reforms to the main public service pension schemes over the last decade, including increased pension ages for new members and a change in the indexation of pensions from RPI to CPI indexation. Some of these changes have reduced projected benefit payments in the coming decades. For the interim report the Commission asked the Government Actuary’s Department (GAD) to project future public service pensions expenditure. It projected benefit payments to fall gradually to around 1.4 per cent of GDP in 2059-60, after peaking at 1.9 per cent of gross domestic product (GDP) in 2010-11.

    That does include the effects of George Osborne’s change from RPI to CPI. But not any of Hutton’s recommendations. Please withdraw your inaccurate comment.

  • Mark Inskip 10th Jul '11 - 8:32pm

    @Andy Dowland
    And the RPI to CPI change is one of those the unions are disputing.

    More importantly the subsequent paragraph to the one you quoted states;
    1.4 Future costs are inherently uncertain and sensitive to assumptions on life expectancy, size of workforce, earnings growth and the implementation of reforms. Chart 1.B demonstrates the possible impact of altering some of these assumptions. Given the current design of public service pension schemes, the general public cannot be sure that schemes will remain sustainable in the future.

  • Andy Dowland 10th Jul '11 - 9:35pm

    @Mark Inskip

    Hutton’s assumed that the change from RPI to CPI would reduce inflation from 2.75% per annum to 2.00% per annum. Over a 15 year retirement that would reduce payments by 8% (the Trade Unions tend to use 15% in their publicity, but that’s the difference at the end of retirement, not the average).

    So if the change was reversed back to RPI the cost as a proportion of GDP wouldn’t reduce to 1.4%, it would reduce to (1.4% x 1.08) a little over 1.5%. That’s still reducing.

    Hutton does muched that life expectancy and the other assumptions could change, that’s why I mentioned it in reply to you at 4:49pm. The existing public sector pension agreements have a cap and share agreement which prevents any increased cost to the scheme falling on the taxpayer. So no matter what happens the pensions remain affordable.

  • Mark Inskip 10th Jul '11 - 9:51pm

    @Andy Dowland
    So are you saying that Hutton was wrong when he stated “Given the current design of public service pension schemes, the general public cannot be sure that schemes will remain sustainable in the future”?

  • Andy Dowland 10th Jul '11 - 10:07pm

    @Mark Inskip

    Of course not – given the *current* design, they cannot be sure that the schemes will remain sustainable in the future. But the cap and share arragement means that the employers will not increase their contribution beyond the cap so negotiation will be required to change the design of the scheme so that it remains sustainable.

    There is no justification for going back on the agreement the Government already made in 2006-08 in the various public sector schemes. There may be some time in the future when the assumptions made in the mid 2000s are shown to be too optimistic or too pessimistic but that time is not now or close to being now.

  • Andrew Suffield 11th Jul '11 - 12:55am

    There may be some time in the future when the assumptions made in the mid 2000s are shown to be too optimistic or too pessimistic but that time is not now or close to being now.

    Wait, what?

    The assumptions made in the mid 2000s were “we have defeated the cycle of boom and bust and ensured continued steady growth will continue indefinitely”. Those assumptions have been shown to be completely and utterly wrong.

    In all this back-and-forth the fundamental issue with the UK public sector approach to pensions has been ignored: it’s a form of Ponzi scheme. Pensions paid to current pensioners are coming out of the payments made by current workers. The error is exemplified by this statement, which is incorrect:

    I’ve paid into the NHS scheme for 15 years and my employer has put in more. If I had taken that money and put it in the bank then that would be worth about £50k by now. How am I now not entitled to the benefit that I was told I was paying for.

    You haven’t been paying for your benefit. You’ve been paying the pensions of people who have already retired, in the hope that when you have retired, there will be enough working people to pay benefits to you. This is very different to how a private sector pension works: there, you pay money into a fund (individual or collective) and that money you pay in is the seed capital for what you receive when you retire. If everybody else stopped paying into pension funds, yours would still exist and would continue to pay your pension.

    That’s not automatically bad – as long as there’s no economic crash (oops) then everything’s fine for now, but there’s a longer-term problem: the age demographics in the UK are changing in the wrong direction. The average age of the population is increasing, and the fraction of the population which is drawing pensions is also increasing. At some point in the future, there is a significant possibility that there will not be enough working people to pay all the pensions (or that the working people become sufficiently unhappy with paying such a high rate of tax for the pensions of the people who created this mess, that they vote in a government who cancels the pensions, which would be a humanitarian disaster).

    The government is not proposing to eliminate this possibility entirely, because nobody really knows how to fix this mess. They’re just trying to make the situation less bad. So, that’s why all this is happening.

    The exact amount of adjustment to make, and where it is made, are still being debated. Everybody seems to be taking a position of “I want more money at the expense of everybody else”, which is unsurprising but a bit sad.

  • Andy Dowland 11th Jul '11 - 7:40am

    @Andrew Suffield

    To take your last point – I’m not wanting more money at the expense of everybody else. I want to not be in poverty in my old age and don’t want anyone else to be either. The government has had 20% of my salary for the last 15 years to help meet it’s obligations to existing NHS pensioners. Their promise is that when it becomes my time to retire they will give me a pension based on my earnings and therefore my contributions. I don’t feel that it’s selfish to want the government to honour it’s side of the promise.

    Hutton’s shown that the schemes are sustainable and do not present a cost to the taxpayer in current circumstances and projections. His recommendations do not include a hike in contributions. I’m afraid that the government are using Hutton as a smoke screen knowing that few people are actually going to read it.

  • “Pensions paid to current pensioners are coming out of the payments made by current workers.”

    That’s not a ponzi scheme – that’s somehting that is perfectly sustainable. If the scheme relied on the new entrants paying ever greater sums than the previous entrants (as a percentage of GDP) just to keep the scheme running then it would be a ponzi scheme, but as Hutton has clearly demonstrated, it is not.

  • Mark Inskip 11th Jul '11 - 8:14am

    @Andy Dowland
    You keeping saying that Hutton says the schemes are sustainable and don’t need change despite the quote I provided from his report on sustainability and despite him recommending changes which form the basis for the government’s proposed changes..

    The trigger for the private sector realising they had a problem with their pension schemes was when they had to include pension liabilities on their balance sheets. This Wednesday for the first time the Treasury will publish its pension liabilities (debts) calculated on the same basis the private sector companies have to do for DB shemes (whole of government accounts). This is the first that the true consolidated picture will be available. I think it will make interesting if shocking reading.

  • Andy Dowland 11th Jul '11 - 8:23am

    @Mark Inskip
    Look at the report. Hutton sees that there’s a risk if current projections are wrong and there was a chart in the Interim Report showing that previous recommendations have consistently underestimated future life expectancy. So he has a recommendation on it.

    Recommendation 12 The Government, on behalf of the taxpayer, should set out a fixed cost ceiling: the proportion of pensionable pay that they will contribute, on average, to employees’ pensions over the long term. If this is exceeded then there should be a consultation process to bring costs back within the ceiling, with an automatic default change if agreement cannot be reached.

    The NHS and LG schemes already have such a cap, the Armed Forces scheme doesn’t, the thing that’s new (and sensible) is that an automatic default change kicks in if agreement cannot be reached. That’s all Hutton wants and it’s a good recommendation. The government is going way beyond Hutton’s suggestions.

  • Andrew Suffield 11th Jul '11 - 8:25am

    If the scheme relied on the new entrants paying ever greater sums than the previous entrants (as a percentage of GDP) just to keep the scheme running then it would be a ponzi scheme

    I refer you to the paragraph beginning “That’s not automatically bad”, which discusses how the changing demographics in the UK do mean that new entrants will have to pay ever greater sums than previous entrants, as a percentage of GDP, just to keep the scheme running.

  • Andy Dowland 11th Jul '11 - 8:30am

    @Andrew Suffield

    “… changing demographics in the UK do mean that new entrants will have to pay ever greater sums than previous entrants, as a percentage of GDP, just to keep the scheme running.”

    Based on what information? I don’t know why we employ so many statisticians when Hutton could have just asked you.

  • @ Andy Dowland
    On changing demographics – today there are roughly four times as many people working as there are pensioners. By the middle of this century the life expectancy predictions indicate that there will only be two times as many people of working age as there will be pensioners. For an unfunded scheme that this would mean that contributions for working people at that point will need to be double what they are today.

    If you take these figures and apply the cap, then for the NHS example based on your figures above the total contribution today for most employees is 6.5% plus employer contribution at 14.0% (20.5%). If you cap the employer contribution at 14.0%, then to reach 41% (twice 20.5%) an employee in forty years time would need to pay 27% contributions!

  • Andy Dowland 11th Jul '11 - 12:41pm

    @Mark Inskip
    As you’ve read the report you will have noticed the chart that shows the cost of public sector pensions as a % of GDP reducing from 1.9% in 2009/10 to 1.4% in 2059/60. In fact you’ve refered to that exact piece of data. Are you saying that Hutton’s got his facts wrong or are you just making up numbers to support your argument?

  • Andrew Suffield 11th Jul '11 - 7:30pm

    Based on what information?

    Please see Appendix D of the Hutton report for a full and detailed list.

    As you’ve read the report you will have noticed the chart that shows the cost of public sector pensions as a % of GDP reducing from 1.9% in 2009/10 to 1.4% in 2059/60. In fact you’ve refered to that exact piece of data. Are you saying that Hutton’s got his facts wrong or are you just making up numbers to support your argument?

    No, it’s simply that they assume:

    1. GDP will grow faster than pensions costs over the next 50 years
    2. The number of public sector employees will continue to be cut over that period

    2 in particular is another legitimate approach: as well as increasing contributions and working age, we can employ less people. The assumption here is that the shortfall from people no longer paying into the scheme will be met out of general taxation.

    There’s also an extra confounding factor that historically, pensions were more generous, and over the past couple of decades they have been reduced. Current pensioners are getting more money than future ones are likely to, which again reduces the apparent cost over this timespan. It’ll hit a minimum around 2050 (when all the people on the better schemes will be dead) and then start rising again.

  • Andy Dowland 11th Jul '11 - 7:46pm

    @Andrew Suffield
    “Please see Appendix D of the Hutton report for a full and detailed list.”
    Appendix D of the Hutton Report is a summary of evidence received by the Commission since the interim report. Nothing in there about the demographics.

    “It’ll hit a minimum around 2050 (when all the people on the better schemes will be dead) and then start rising again.”
    You may be correct, but I’m not aware of any research past 2060, do you think that a 3% cut in wages in the middle of an economic slump in 2011 is the right way to address a possible increase in pension costs past 2060?

  • Mark Inskip 11th Jul '11 - 9:32pm

    @Andy Dowland
    “do you think that a 3% cut in wages in the middle of an economic slump in 2011 is the right way to address a possible increase in pension costs past 2060?”
    By 3% wage cut you mean 3% increase in contributions. You are mistaken about the government proposals – they are not planning any increase in 2011. The increases are proposed to be phase in over 3 years, 1.2% in 2012, 1.2% in 2013 and 0.6% in 2014.

  • Well of course a strike is political. Withdrawing your labour in protest at a government policy is always going to be political. Negotiations are a super thing, I am sure. However, the only reason why any government would negotiate with union members is if the members have access to a right to strike. Unions are not made up of a bunch of thick idiots led by devious leaders who are pursuing some clever long-term political agenda. They are made up of individual members who are probably more informed than the average Daily Mail reader whose vote is being courted by Nick Clegg. If those members chose to vote to strike then they will have made an informed decision to do so. A strike may have a bad result but if people vote to strike it might be a good idea for politicians who claim to be democrats to respect a democrat election.

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