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Are our pensions overly generous?

15 December 2008

That was the crux of a discussion on Radio 4 between our General Secretary, Mark Serwotka and John Cridland of the CBI.

This happened on the Today Programme on 12 December. Below we provide transcript of what was said. (NB: this is not an official transcript and was produced using the 'listen again' service on the BBC webstie). P stands for the BBC presenter, JC obviously is John Cridland and of course MS is Mark Serwotka.

P: The £7bn Royal Mail pension headache may end up in hands of the tax payer. How many private sector workers in the economy would like to be able to dump their under funded pension scheme problems onto everybody else. The gap between private and public sector pension provision has become stark. A pensions apartheid, David Cameron calls it. And today the employers organisation, the CBI, has called for an independent review of the burden of pensions for public sector workers. John Cridland is the Deputy General Director of the CBI. Good morning. Obviously the matter is quite well known, why do you think we need a review or an independent commission?

JC: Because the Government isn’t publishing regular figures about the size of the pensions gap. In 2006 it said that the unfunded liability for civil service pensions was £600bn. We believe on a conservative set of assessments that thats now £900bn. But the Government hasn’t published any new figures in the last 2 ½ years and that is something that the tax payer is picking up as a tab. Last year £29bn of new pension benefits were earnt by public sector workers but only £19bn of contributions were made, so the tax payer picked up another £10bn. Now we are not saying that the pensions of public sector workers should change – thats not our business in the CBI – but as tax payers we are saying we need and independent commission so that the public and the business community know just how much of our tax is going to fund this gap.

P: I’m a bit surprised you are not saying that the matter needs to change, that the actual pension provision is disproportionate in the public sector compared to what your own members, the private sector, can provide.

JC: Well a lot of business would think that – retirement ages are typically different, 65 in the private sector, 60 for existing workers in the public sector. And mortality assumptions and indexation and interest rates used in the public sector are all different and we think that leads to this gap of realism as to what the liability is. But what I’m saying here is the public sector is its own employer, it needs to negotiate the affordability of public sector pensions with its own unions. We as a private sector employer wouldn’t tell them what to do – what we think we are entitled to is the same level of transparency about the size of the liability in the public sector as now exists on private sector balance sheets like the Post Office.

P: Right. Well lets go to Mark Serwotka, General Secretary of the Public and Commercial Services Union. Good morning to you. Do you buy the argument that its perhaps a little disproportionate in the public sector, the pensions are overly generous compared to what the tax payers who fund them are able to get themselves?

MS: No I don’t. I reject that and I have to say its very unfortunate that only 3 years after we went into all of this, and reached a settlement with the Government on the future of public sector pensions, that this is the latest attempt not just by the CBI but by other organisations to undermine public sector pension provision and people should think before they make these statements how unsettling it is for millions of public sector workers, the average ones in my union whose pension is £4,000 a year because they are on low salaries, that their pensions come constantly under attack. Its not true to say that the public sector has retained the pension age of 60. In 2005 when we renegotiated pensions we protected the pension age of 60 for existing employees honouring their contracts but agreed to introduce changes to the pension age of 65 for many of them for new starters. That was part of a carefully crafted deal that recognised some savings needed to be made for the future but honoured existing contractual entitlements for very hard working public sector workers who in many cases earn less than their comparators in the private sector.

P: Well this the point isn’t it. I’m going to interrupt you there because do public sector workers earn less and thus deserve a bigger pension as part of the offsetting of the low wages or do they actually earn more sometimes than their private sector equivalents?

MS: Well lets look at some of the facts and perhaps the listeners can judge for themselves. The civil service, I bet many people listening to this think they are probably a decent employer, 25% of Britain’s civil service is earning less that £16,000 a year; 83% are on less than the average wage in this country.

P: But we don’t know if we are comparing which workers with which workers – there are plenty of low paid workers in both the public and private sectors of course but you need to compare the same skills and the same kinds of jobs all sorts of things don’t you.

MS: Well let me give you an example of the skills. Lets look at the people who administer Britain’s benefits system and collect our taxes. The majority of these people’s average wage is around £17.5k a year.

P: If its so bad in the public sector why don’t you cheer when the Government says its going to partially privatise the Post Office or put work in the private sector. You should be saying ‘great this is our chance to earn a bit more’ but I never feel the public sector unions do cheer when the Government says they will put things into the private sector.

MS: No we don’t because our experience is usually when public services are privatised the service deteriorates, service users suffer and...

P: And the workers benefits from higher pay so this doesn’t ring true at all does it?

MS: No often private companies do attempt to try and cut pay and conditions even further. But I think I have to say that we should be aspiring not to a race to the bottom but for people to have decent pension provisions in old age and at a time when public sector workers have been told they can have 2% pay rises or less for the last year to now undermine their pensions is completely unacceptable.

P: Let me get John Cridland to comment on that. John Cridland do you think public sector workers do, if you like, get a generous pension to offset some of the other things they have to suffer when they are at work compared to private sector counterparts?

JC: Well I want to stress again, and I think the CBI is saying today is about attacking public sector pensions how those pensions are constructed and funded has to be a matter for the unions and the employers concerned. But you can’t go on forever for the next generation earning £3 of benefit each year for £2 of contribution. Because the tax payer that is picking up the tab and doesn’t really realise thats happening. Average earnings in the public sector are now higher than average earnings in the private sector so the old argument which was fair in the past that this compensated for low wages is no longer true. But I’m not attacking public sector pensions....

P: Well you are a little bit. You are saying that there should be an independent review and you are drawing attention to it because you think....

JC: We’re drawing attention to it because the tax payer can’t afford to pay this unless the Government decides its going to subsidise public sector pensions above and beyond the contributions that the employer and the employee puts in. Thats a perfectly democratic decision but at the moment we don’t know thats what they are doing except by accident.

P: Mark Serwotka finally, do you think if public sector workers were offered a cash alternative to the true cost of their pension, if the cost was transparent, they were offered a cash alternative to the true cost of the pension, and told to look after their own pension, do you think they might take it because the true cost is extremely high in terms of providing that kind of equivalent pension, in the private sector at least it is?

MS: Well I think that anything that tempts people not to have an investment in their pension – it would be a mistake. I think that we should ensure that people at work particularly the millions of public sector workers can look forward to their retirement with some form of dignity, we should encourage people to join pension schemes and what we should not do is every few years undermine the future of millions of hard working public servants. We did this three years ago, we reached a settlement....

P: But its good for them to know the cost that the pension is, transparency is what the CBI are calling for and that surely is something even everybody in the public sector should at least support that.

MS: I’m not against transparency of pension costs but I think we have to recognise that the pensions are part of the employment of public sector workers and we should stop using it as a political football.

P: So to some degree at least our two speakers are agreeing.

 

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