Public sector pensions: cuts amount to 7%

Robert Peston’s analysis of the proposed public sector pension reforms from John Hutton contains this key calculation:

The estimate – made by the analyst John Ralfe – that the switch would save just £2bn a year, out of the estimated total annual cost of state pensions (much of which is hidden) of £30bn.

That £30bn is Ralfe’s estimate of the annual cost. It is double the official estimate, with the disparity due to a disagreement on the appropriate discount rate for valuing future liabilities.

A reduction in the value of retirement benefits of 1/15th [7%] would of course be unpleasant. But compared with what has happened in most of the private sector, which has seen the closure to new members of access to any kind of final salary arrangement, and often the complete closure of final salary schemes, well it doesn’t look draconian.

Hutton also recommends bringing the retirement age for public sector schemes into line with the general state retirement age (which is a raising of the retirement age for many in the public sector schemes). This also saves money, but does so on the basis of retirement equality between the public and private sector. In addition, there are the pre-Hutton plans to make changes to public pensions, but in part balancing that are Hutton’s proposals to improve one aspect. As Peston also explains,

[Hutton] explicitly says that the government should continue to provide total protection against inflation for both current pensioners who used to work in the public sector and for future pensioners who still work in the public sector …

What’s more, Hutton suggests that for active savers, accruals should be up-rated in line with the earnings index – which normally rises at a faster rate than either the consumer price index or the retail price index (though that might not be the case in the future) – and there should be no cap on indexation.

At a time when inflation is squeezing most people’s living standards, that looks attractive.

That’s not a view shared by the loudest of the public sector trade union leaders, of course, with immediate condemnation and talk of strikes after the report was published:

Note: I’ve updated and expanded the post to include more information about the full range of pension changes proposed.

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  • But you don’t mention the extra three percent contributions which would mean a nurse would have to pay 100 to 200 pound a month more this coupled with pay freeze and job loses
    Is that fair
    Many nurses faced with paying more will simply leave

    Oh and average nurses pension is gold plated 55 ponds a week

  • @mike
    I have major concern with the suggested 3% rise in contributions. I would have thought a lesser rise combined with a cut in benefits (e.g. a lower accrual rate) would be much more approriate.

    On the “Average nurses pension being £55 per week” – highly misleading. That would be for an “average” nurse’s pensionable career in the NHS of (maybe) 8 years or 11 years or therabouts??

    To be really helpful, Mike, you could tell us the pension payable to a retiring middle-level qualified nurse with (say) 35 or 40 years’ service. I would have thought that would be something like 4 or 5 times the £55 per week you (rather misleadingly) quoted.

  • Mark Inskip 12th Mar '11 - 5:29pm

    Even after the extra 3% the nurse will get massively better off compared to some one in the private sector in a DC scheme. Any nurse who leaves to take up a position in the private sector will be in for a shock.

  • I think nurses are quite useful members of society.

  • Dave Warren 12th Mar '11 - 7:02pm

    Huttons appears to be proposing changes similar to the ones introduced to the Post Office
    pension scheme in 2007 under the auspicies of the TUCs Mr Barber.

    Of course Labour were in power then so that was ok for the TUC hypocrite.

    The changes mean a retirement age of 65, the replacement of the final salary scheme with
    a career average one and a purchase scheme for new entrants.

  • Mark Inskip 12th Mar '11 - 7:37pm

    No purchase scheem for new entrants under Hutton’s proposals – still a defined benefits scheme

  • SteThomas
    “I think nurses are quite useful members of society.”

    And are they paid accordingly?

    On the pension front, according to what I found on the internet (which may be incorrect) a Midwife or a Nurse Specialist retiring after 40 years would receive a pension of £17,000. This would rise to £22,000 on reaching state retirement age. In addition a tax-free lump sum of £50,000 would be paid on retirement.

    That’s slightly more than “£55 per week”.

  • Lib Dem Titanic 12th Mar '11 - 8:22pm

    “This would rise to £22,000 on reaching state retirement age.”

    Bob Diamond is clearly in the wrong line of work. Astonishing riches.

  • Lib Dem Titanic
    Not quite clear what you are saying. Is £22,000 too little, too much or just about right?

    Whatever it is, do you reckon it is more than £55 per week?

  • Lib Dem Titanic 12th Mar '11 - 9:00pm

    I’m saying stop pretending that nurses are overpaid or that their pensions are overly generous.
    They clearly aren’t.
    Bob Diamond and his ilk clearly are as he and his friends laugh at the toothless failure of Project Merlin.
    It’s called priorities and getting them right.

    Blaming public sector workers for fighting for what they were promised and their right while implying they are overpaid, is eerilly reminiscent of the far right Republicans and Fox News in the U.S. blaming teachers for fighting for the right to collective bargaining while calling them overpaid.

    When the public sector takes to the streets, and they WILL take to the streets in enormous numbers, will the Orange Bookers be attacking them while the Social Liberals decide enough is enough ?

  • @Lib Dem Titanic
    If you are a Lib Dem member or supporter, why don’t you use your real name?

    If you are not, why don’t you place your thoughts elsewhere, and allow genuine Lib Dems to discuss an important topic. After all, it does say “Lib Dem Voice Our place to talk.

  • Lib Dem Titanic 12th Mar '11 - 9:23pm

    Devastating riposte Mr Shaw.
    I am reeling from your fact based demolition of the argument.

    Of course a real Liberal Democrat on here would know that the members forum is where those who are still currently members of the Party can discuss things privately without fear of exposure to those not currently in the Party who may hold contrasting opinions they might find unpalatable.

    A regrettable loss of memory on your part I presume ?

  • Simon Shaw

    Can I just remind you of the notice on the front of this site:

    Liberal Democrat Voice is an independent, collaborative website run by Liberal Democrat activists, where any individual inside or outside the party can express their views.

    A number of us who post here are ex-voters – and voters are more important than members in some respects – 90000 votes would not get you far at an election!

    I still come on here to see any glimmer of light that I should give my vote to the LD – at the moment I would say that the response of you and some of the current members posting on this site suggests you have indeed become a libertarian right-wing little brother of the Tories. You, as the membership, have every right to do so but do not be surprised if you cause a reaction or lose voters from the centre-left.

    If you think you can pick up enough votes from the Tories or ex-Blairites to replace those lost then carry on and good luck with it! If that is the case though I think you should be a little more honest by having policies that actually reflect what you ,as a party, support. What you do is more important then the empty votes and rhetoric coming out of the conference.

    Even the BBC cannot be bothered to report on your conference, even though they managed to do so on the SNP one!

  • @Lib Dem Titanic
    Are you saying that you are not a Lib Dem?

    If so, please remember that this is Our place to talk. (Our meaning Lib Dems) That is at the top of this page, not of the Members’ Forum.

  • Simon Shaw

    Read the comment from the front of the site – it suggests everyone is welcome!

    If you want an onanistic love-in then please feel free to do so and suggest it is made a members-only forum. That would be a shame as the other blogs, including one as clearly partisan as ConservativeHome is open to all.

    By responding in this way you are suggesting that you have no coherent arguments to make – others on the site engage in the debate and have not called for all non-LD members to stop posting.

    Remember also that you need people like us to vote for you at elections – I have a choice between Labour and LD as I will never vote Green or Tory. I though Labour were tribal but you are up there with them!

  • @Mark

    Rather misleading or patently dishonest depending on your point of view. Peston does not say, as your headline does, that ‘cuts amount to 7%’. He says that the switch from final salary to career average would save £2billion or 7%. He also points out that a pension age rise from 60 to 65 would save £6 billion; that the change from RPI to CPI will save £6 billion and the 3% increase in contributions will save £3 billion. A total saving of £17 billion from £30 billion amounts to cuts of well over 50%.

  • Lib Dem Titanic 12th Mar '11 - 10:27pm

    @Simon Shaw
    Are you a Conservative ? You certainly act and sound like one.

    BTW when will you decide to tell Mark Pack and the rest of the staff that you have taken over the site and you now personally decide who can and cannot talk on it? Surely that would only be common courtesy on your part?

  • @Simon Shaw

    My name is actually James, I’m a local government worker earning slightly more than the average wage and I voted LD in the GE, is that okay?

    To say I’m concerned and disgusted at this is the over statement of the year; let me tell you that I’m not in line for a bumper lump sum and will only recieve a modest monthly pension ‘IF’ I decide to remain in the LG scheme.

    I’m being attacked from every angle; as well as my pay freezing I’m also finding my local conditions being attacked becaue of the coalition cuts; I estimate that from April that I will be down 128.00 p/m and this is without taking into consideration cost of living rises and bam I’m now going to be hit with this little beauty.

    I’ve been coming on this site for years and as well as being an interesting read I’ve also been educated and influenced; I have to say that I’m utterly consfused, on one hand there is no way on Earth that I would vote LD if an election was called tomorrow though I still feel that I hold libeeral values so what’s the score, should I venture onto this site or not?

  • I’m just looking forward to the refund of my pension contributions to a pension scheme that isn’t paid out of taxpayers money, but is paid from contributions, obviously I’ve been paying into said scheme under false pretences and the Lib Dems and Tories are going to send me a windfall, right?

  • @Simon Shaw, this website clearly advertises itself as a place for all people to talk, I do believe there’s a members forum for those whom are Lib Dem only supporters.

  • @Simon Shaw

    My names Ben and I voted Liberal-Democrat. { Sounds like a confession at an lib-dem anonymous meeting } 😉

    The reason I post on here, is that although I have never been a part activist or joined in at the local levels – I have always been well aware of the partys position and taken a keen interest in it’s policies having voted for it all my life.

    It’s a double edged position as now I have no-one to “moan” at hence my presence on here. And I suspect quite a few share my position and the party is listening. All we hear is Clegg \ Danny Alexander \ cable defiant all the time on whatever nasty policy that is being forced down our throats. No contriteness or sympathies – just pure nastiness.

    Some party supporters on here can be equally as bad – Others I’m not so sure aren’t Tory trolls trying to stir things up for you.

    Anyway back to the topic on hand. Could you possibly cite your source for the £17-22k figures as I would like to check myself?

    @Mike same from you please on the £55 pw. 🙂

  • @Ben
    Happy to do that. May I repeat that these details may be incorrect, which is rather why I wanted someone who has greater knowledge of NHS pay/pensions to correct me if I am wrong.

    My internet search was as follows:
    1. This says that Midwives and Nurse Specialists are in “Band 6”.
    2. This says that Band 6 is a scale rising to £34,189pa (I have to say I don’t know whether most/all employees would rise to the top of the scale over time. I have assumed they do)
    3. This is a pension calulator for NHS pensions. If you enter Age of 60, 40 years of service and final salary of £34,189, this throws out:
    £17,094 pa pension +
    £51,283 lump sum
    4. The basic state pension is currently £95.25 per week (due to rise in April). £95.25 X 52 = £4953 pa.

    That’s how I got to the figures of £17-22k. I erred slightly on the low side. The precise figures are £17,094 and £22,047.

    Lib Dem Titanic said earlier that he thinks that level of pension should be higher, but hasn’t said why.

  • Thanks Simon

  • Stuart Mitchell 13th Mar '11 - 10:51am

    @Simon Shaw

    You obviously know very little about nursing. Very few nurses will work for 40 years and finish on that kind of pay scale. Many quit early (in a lot of cases due to the physical and mental toll of the job); many work part-time; many take lengthy career breaks to raise families; and so on. (Source: nurse spouse.)

    The few who do clock up 40 full-time years will probably be physical wrecks by the end of it so I wouldn’t envy their pensions too much.

    In my opinion nurses ought to be given the same kind of pension arrangements as firefighters and police officers. If you want to pick on a group of public servants for being over-cossetted and having gold-plated pensions, you could hardly have chosen a worse target.

  • Lib Dem Titanic 13th Mar '11 - 10:58am

    Someone appears to have difficulty reading, I actually said stop pretending that nurses are overpaid or that their pensions are overly generous.

    Which you continue to do by cherry picking your own unlikely and untypical example as Stuart Mitchell points out.

    Why do you think nurses are overpaid and their pensions are too generous ?

    Is it because of a deeply held belief about their value to society compared to say, bankers ?
    Or is it because you are trying to justify a right wing attack on public sector pay and pensions ?

  • Stuart Mitchell 13th Mar '11 - 11:28am

    The only reason public sector pensions are under attack (and the government and its apologists are very explicit about this) is that it is sen as “unfair” for public workers to continue having decent pensions while private sector schemes go to the wall.

    Now maybe I’m missing something terribly obvious here but… if private sector workers have seen an erosion in their pension beenfits, then shouldn’t we consider that to be the real problem, and shouldn’t the solution to this problem be to get private sector pensions back on track, rather than drag public sector pensions down to the same level? What exactly will be the benefit to private sector workers of seeing their public sector counterparts lose out? This isn’t “fairness”, it’s the politics of schadenfreude.

    In a truly “fair” society, everybody would indeed have access to similar kinds of pension scheme, with equivalent benefits. But as far as I can see, the only way you could possibly achieve that would be through a state-prescribed, socialistic pension scheme, applying equally to both public and private sector workers. Sounds good to me.

  • Lib Dem Titanic 13th Mar '11 - 11:34am

    Here’s an extract from this very informative piece by Professor Cathy Warwick who tackled some of the right wing myths about public sector pensions.

    Firstly, let’s take a look at the reality of these bounteous public sector pension pots. Take the average pension for a female NHS worker, £5,000. What is worse, half of all women pensioners who have worked in the NHS get a pension of less than £3,500 per year. That’s not so much gold-plated as tin-plated.

    And let us also take a look at how much of an explosion in the public finances the public sector pension time-bomb will cause. Thankfully, to help us, the pre-Budget forecast report by the Coalition’s own independent Office for Budget Responsibility (OBR) sets this out in detail. Take a look at Table 5.1 of the OBR’s lengthy report, for example. This is information from the Treasury’s own long-term forecasts, which the OBR supports. We see that public sector pensions currently cost the taxpayer the equivalent of 1.8 per cent of GDP; that is predicted to rise to 1.9 per cent over the next 20 years, before returning to 1.8 per cent and then, by 2049/50, falling below current levels to 1.7 per cent of GDP.

    So, over the next 40 years, the burden of paying for public sector pensions will remain pretty much static. No ballooning debt, no mushrooming of costs, no explosion of liabilities. Instead, the cost looks set to be steady, predictable and sustainable.

    What is more, despite its portrayal as a tax-guzzling monster, the NHS pension scheme actually hands billions of pounds over to the taxpayer each year. More is paid into the fund than is paid out to pensioners, and all that surplus goes to the Treasury – thereby helping, not hurting public finances. Far from being the costly gold-plated public sector pension of tabloid yore, the NHS scheme is more like the goose that laid the golden egg.

  • Stuart Mitchell
    “If you want to pick on a group of public servants for being over-cossetted and having gold-plated pensions, you could hardly have chosen a worse target.”

    I didn’t choose Nurses as an example, that was the first poster, mike.

    He alleged that the “average” nurse gets a pension of £55 per week.

    Do you not think that is a little misleading, Stuart?

    Please bear in mind that my very first comment was that I was very concerned about the proposed 3% rise in employee contribution rates. Am I to assume that you support that?

  • Lib Dem Titanic
    “Why do you think nurses are overpaid and their pensions are too generous ?”

    Are you a Trot? You certainly act and sound like one.

    I always assume Trots manipulate what other people say.

    Where did I ever say that nurses were overpaid?

    All I did was say that anyone saying that the average nurses pension is £55 per week (under £3000 per year) is giving a misleading impression.

  • Stuart Mitchell
    “The only reason public sector pensions are under attack (and the government and its apologists are very explicit about this) is that it is sen as “unfair” for public workers to continue having decent pensions while private sector schemes go to the wall.”

    No, Stuart, I reckon you are wrong there. I reckon most people are concerned about public sector pensions because of the enormous cost.

    Do you think the cost is unsustainable? If you do, how would you reduce it?

  • Stuart Mitchell 13th Mar '11 - 1:05pm

    “He alleged that the “average” nurse gets a pension of £55 per week. Do you not think that is a little misleading, Stuart?”

    Well according to the article LDT refers to, £55 per week is much closer to the average than your highly unrepresentative example.

  • Depressed Ex Lib Dem 13th Mar '11 - 1:07pm

    Are you a Trot? You certainly act and sound like one.

    Simon, are you a former supporter of the Tory party?

  • Stuart Mitchell 13th Mar '11 - 1:16pm

    “Do you think the cost is unsustainable?”

    Clearly not, since it’s already forecast to go down in real terms, without any further changes.

  • There is no doubt whatsoever that the media and MP’s of all hues (and this includes the last Labour government) have been trying to point out that private sector pensions are poor in comparison to public sector pensions as a means to try and undermine the public sector pension system.

    I have seen numerous quote that it’s not fair that public sector workers get these pensions, even the funded ones are under attack and the unfunded ones are part of the deal of employment.

    It’s also untrue to claim that public sector pension schemes are resistant to any change, plenty of them have changed in the last few years, higher contributions have already been implemented in some cases, accural rates have been changed, new members won’t get the same deal as existing members because of questions of affordability. The Unions have agreed to these changes, they understand there are issues but what they’e asking now is when is it going to stop.

    Anyone who pays into a pension scheme for 40 years should be looking at a reasonable return, that’s the whole point of pension schemes, private schemes can allow people to retire early too if you’re in the right one,

  • Stuart Mitchell
    “Well according to the article LDT refers to, £55 per week is much closer to the average than your highly unrepresentative example.”

    Do you not understand that quoting an “average” like this is totally misleading? It will include (for example) people who took up nursing, and left after 4 years deciding it wasn’t for them, etc etc.

    Do you realise that for a Nurse Specialist or a Midwife a pension of £55 per week would mean that they had around 7 years’ service before drawing their pension (assuming their final salary was the top of the scale)?

    I repeat, do you not think quoting averages like that is a little misleading?

    And if you really think that working 35 or 40 years is “unrepresentative”, how short a working life do you think public sector employees should need to work in order to secure a “full” pension?

  • Stuart Mitchell
    “Do you think the cost is unsustainable?”
    Clearly not, since it’s already forecast to go down in real terms, without any further changes.

    Isn’t that like saying you know of a house that was on the market for £1 million, and the price was reduced to £900,000? Does that make it affordable?

  • Simon Shaw

    Why do you pick on the public sector so? My own experience, anecdotal as it is although as relevant as your made up examples, has been of plenty of people retiring at 50 with fully paid up pensions in the private sector as well – some receiving their pension whilst continuing to work. Now it has changed to 55 I have still seen the same thing albeit 5 years later. Not all private pensions are bad – ask the directors of FTSE companies.

  • bazsc
    “Why do you pick on the public sector so?”

    What a weird comment!

    1. I have not “picked” on the public sector. My very first comment was to disagree with the 3% proposed increase in employee contributions.

    2. My other main comment has been to correct those who give a misleading impression of “average” pensions which commonly relates to an average of only 8 to 12 years of membership of the pension scheme.

    3. This thread is actually about Public Sector Pensions, so it doesn’t seem unreasonable to talk about them.

    4. My current job is in the public sector. In the past I have worked in both the public and private sectors, and in 5 years am due to start receiving a pension of around £6000 pa from the Local Government Pension Scheme and also around £1750 pa from the Teachers Pension Scheme. My wife took VER/VR last Summer from her job as a Teaching Assistant and now receives a pension of around £6500 pa from the LGPS. My eldest son works for the local council in the Library Service. However I do hope I don’t display the counter-productive blinkered self-interest that some others who work in the public sector show on this issue.

  • Lib Dem Titanic 13th Mar '11 - 6:34pm

    @Depressed Ex Lib Dem

    “Simon, are you a former supporter of the Tory party?”

    What do you mean former ? 😀
    I’ve seen Osborne direct less barely concealed bile at the level of nurses pensions.

    I think it’s just plain nutty that anyone would think sticking up for nurses and pensions pay means you are a ‘trot’. While attacking nurses pensions by pretending they are all on £22,000 when half of all women pensioners who have worked in the NHS get a pension of less than £3,500 per year, is at best disingenuous and at worst the kind of right wing Fox News style contempt for the reality of the situation and those nurses.

  • @Lib Dem Titanic
    Doing it again, aren’t you.

    “Sticking up for nurses.” Give us a break!

    “pretending they are all on £22,000.” There you go again. Whoever said that?

    Read what I said, not the distortion of it that you peddle.

    Simon Shaw
    “Are you a Trot? You certainly act and sound like one.

    I always assume Trots manipulate what other people say.

    Where did I ever say that nurses were overpaid?

    All I did was say that anyone saying that the average nurses pension is £55 per week (under £3000 per year) is giving a misleading impression.”

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