Despite protests against pension cuts, public employees are often better off than private onesby Paul Johnson / July 20, 2011 / Leave a comment
The coalition’s plans to cut public sector pensions have already sparked strikes and protests across the country; more are likely to follow. At heart, however, this is not just a row about pensions. The pension changes come together with hundreds of thousands of job losses and a two-year pay freeze as the government tries to reduce both short and long-term spending. All this shines a light on the widening gap between the public and private sectors; a gap which has increasingly made the two parts of the economy seem almost foreign to each other.
David Cameron’s initial explanation for the pension reforms was that the current system is “unaffordable.” But it is difficult to base an argument against future spending purely on assertions about whether or not the country can afford them. If the government wants to protect pensions, it nearly always has options: it can tax or spend more, or spend on different things.
Public sector pensions are expensive, however. Ex-public servants received £32bn in pensions in 2008-09: almost 2 per cent of national income. This is nearly two thirds as much as the universal basic state pension, which is paid to five times as many people.
But as a proportion of national income the cost of these pensions appears to have peaked. A gradual fall towards 1.4 per cent of GDP is forecast by 2050. This partly reflects changes made by the last government, which increased the pension age from 60 to 65 for new entrants into the main schemes. The coalition has already banked a further fall in cost by changing the way pension payments are to be linked to inflation.
Rather than judging the reform proposals on the basis of “affordability,” it is more useful to compare them to the overall pay levels and structures of reward in the private sector. How do they measure up?
Despite changes already implemented, there is no question that the biggest advantage public sector employees still enjoy over the private sector is in the generosity of their pensions. About 85 per cent of public employees are members of a “defined benefit” pension scheme: where pension rights are defined as a proportion of some measure of salary and years in the job. In the private sector only around one in ten workers has access to such a scheme, and…