The pensions debate

FOLLOWING the support of the teachers strike, I feel it’s perhaps a good idea to add some balance to the debate currently going on at the moment.

Firstly, I might add there is no intention of starting a war between the private and public sectors as both are equally as important as the other. Neither do I want to get into any controversy over job status – the road sweeper, hairdresser, architect, doctor are all an integral part of our society adding to the wellbeing of all of us.

Having said that somehow our society has got out of kilter, some will argue in a number of ways: in terms of commerce, with too much reliance on the service sector and also in terms of pay and benefits between the private and public sectors. The government is tasked with rebalancing the economy in both ways.

Let’s take a broad look at the issues that are causing all the problems with the teachers and where the government is coming from starting with the basic facts:

l Wealth is created by the private sector for the public sector to exist at all.

l The private sector is the risk taker and therefore it is not unreasonable to skew the benefits towards this sector as we need to encourage the entrepreneurial spirit – possibly now more than ever.

l The public sector is there to keep the wheels of industry running to: educate, to create an environment where we can all prosper and, of course, keep the nation healthy and productive.

l If you think about it: we train for 30 years, productive for another 30 years, and retire for another 30/40 years – this just doesn’t make economic sense.

l Currently the public sector absorb 53.6 per cent (although this has possibly fallen marginally of more recent times) of the UK’s Gross Domestic Product (GDP). It’s not rocket science to understand that spending more than we are earning will soon take us down the road to bankruptcy.

l In 2003/04 the then-government heaped huge sums of taxpayers’ money on the public sector as a whole (reasons elude me at the moment) as a consequence staffing costs in the public sector went into the stratosphere. For example, the staffing costs for the local council in 1997 were 58 per cent of the net budget available; by 2003/04 it shot up to a phenomenal 109 per cent of the net budget available. This is by no means unique and the same happened right across the board in the public sector.

l The consequence of this largesse was that public sector salaries no longer lagged behind the private sector – just the reverse whereby at one time were, on average, 30 per cent better (8 per cent + pension benefit).

l Of course, it didn’t end there: if salaries were far larger, pension contributions had to be increased too, to meet the higher retirement expectations of final salary based schemes. The result, so experts tell us, that the public sector liability rose to an astonishing £1 trillion - £40,000 debt for every household in the country.

This aside, although changes took place in 2007 in a number of public sector schemes whereby public sector employees were asked to contribute more towards their retirement a taxpayer subsidy was still required. For the Boston Borough Council scheme this was 23.2 per cent. Put another way, an employee on £30,000 per annum would receive a further £6,960 to put into his/her pension pot courtesy of the taxpayer.

Whilst we clearly don’t want to get into a race to the bottom as far as pensions are concerned neither do we want to build up resentment that could fester over the coming years. The private sector has all-but lost its pension benefits, as well as many losing their jobs too during the early days of the recession. Again experts tell us that what the government proposes simply changes a diamond encrusted scheme down to a gold plated one – to observers this doesn’t seem unreasonable. Most of us don’t like losing any benefit but one could argue this was an artificial situation created by the last government. It’s important to look at both sides of the argument and for us, the general public, to understand why any sector should be treated differently.

The UK is far from out of the woods as we desperately need to reinvent ourselves to stop becoming another Greece and to compete with the emerging Far East. It’s a mammoth task the present government has – let’s hope, for all our sakes, they are up to it.


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