Blog:Public Sector Pensions
From Bolton Interweb
del.icio.usRob Binud, Economic Correspondent, 18th June 2011
As the public sector unions prepare to strike over plans to make them work longer and pay more for their pensions, it is worth taking a little history lesson.
In 1909 the Old Age Pension was introduced at a rate equivalent to £19 in today’s money for those over the age of 70. The married couple’s pension was equal to £29. These early pensions were means tested. At the time average life expectancy for men was 50 and for women it was 55. In fact only 1.5% of the population qualified. Today the state pension (excluding top-ups and other benefits) has risen 5 fold in real terms and over 15% of the population are over the current pension age of 65. Life expectancy is now over 80 years so on average pensions are claimed for 15 years. And that just rose by 44 days in just one year.
Whether you like it or not the maths are clear. Retiring at 65, let alone 55 to 60 if you are a public servant, is simply not sustainable. You either have to pay a lot more into the pot, more than most people can afford, or work longer. Or realistically, both. It is not possible to work for 35 years and then get half pay on retirement for another 25 years unless you put 40% of your pay into your pension plan.
It’s not fair whinge the public sector unions. Well unless you introduce mandatory euthanasia at age 70, which was the average life expectancy for men as recently as 1980, around when many of the whingers started their working life, of course it is fair – you live longer, you work longer. What isn’t fair is to expect the working population to pay you a pension for twice the length of time you were originally expecting when you signed up. Yes this is about changing the rules in the middle of the game so those in their 50's have to work 5 years longer than they thought. But they are living 10 years more than they thought so the rules have already changed.
I left the Civil Service in my early 30’s and my pension was preserved. At age 60 I will get roughly £18,000 plus £500 a month for life, £138,000 of taxpayers cash if I get to the average and I have a long-lived hereditary heritage. Although the taxpayer only signed up to a £80,000 pot when they employed me. I’ll live with the guilt and take it. Please feel free to shed a tear on my behalf. Nevertheless, since I have been self-employed since then, I fully expect to have to work to age 70 to be able to support myself and I’m not crying about that, the world has changed and people are living much, much longer. What I am not happy about is the concept that a not insubstantial amount of the taxes I pay between 60 and 70 years of age will be going to pay public sector workers to sit on their backsides in early retirement if the unions get their way (I’ll consider my own pension a rebate). It is the same for everyone in the private sector – why should we work until 70 so the civil servants and teachers can retire at 60 and police and army officers can retire at 55. Now that ain’t fair.
So to the public sector workers planning on going on strike I say go ahead, it will save the country a day’s wage. To the public sector unions claiming the industrial unrest will be bigger than the 1926 General Strike and they are going to win this one, I say don’t be absurd, get real and stop fooling your members. The vast majority of people are in the private sector and have zero, probably less than zero, sympathy and support for your case and it has more holes in it than a Lib Dem election manifesto. To the Government I say don’t give an inch on this one; in fact take quite a few more inches and be brave enough to repeat the inescapable maths on this subject. And if you make me work until 70 and let them carry on retiring at 60 at my expense then it might be the one thing that makes me take to the streets with a banner. Start being honest about the pension hole with everyone – tweaking the general retirement age by a year or two is solving nothing. Here’s a radical idea – permanently link the state and public sector pension age to average life expectancy minus 10 years and then everyone will understand the connection.
Do we want 65 year old policemen? Provided they are fit enough, yes. If not I am sure there are plenty of non-uniformed jobs that can do until they are 65. Same with experienced armed forces members. At age 65 they are still 15 years off meeting their maker, as they were in 1980 with retirement at 55 and clog-popping at 70. When I was a kid people in their 60's were old and decrepid, on their last legs and wracked with arthritis and rheumatism. Today's 65 year olds are mostly fit, active, and nowhere near past their sell by date. The term elderly only applies now to the over-80's. No I don't want a surgeon with shaky hands but they can teach and consult and their experience is priceless.
I got my private pension statement this week, which brings home exactly how much pensions really cost when you don’t have a taxpayer subsidy. A yield of less than 4% if I take it at 60. All in all I need a pot of about a quarter of a million quid to give me 20 years on a modest £1000 a month. Scary. I’d be better off buying a couple of rental properties and living off the rents, and keep the capital intact if not growing for my heirs. Now there’s an idea. If I had taken up the option of rejoining the civil service a couple of years ago I would have been given an equivalent pot of £375,000 at 60 even with all the missing service. So there's another idea if it's alright with the rest of you.
© Evrose, 2011
