Pension Reforms

There’s a lot more right than wrong in John Hutton’s wide ranging report into how we need to adjust our assumptions and expectations about state-provided pensions. Difficult though some of his conclusions are in terms of indexing, contributions and retirement ages, we are all living longer and we need to work through the implications of that.

Treasury provided pensions in the UK exist to fund two main groups; a basic level of retirement income for all of us through the state pension in its various forms and occupational pensions for public sector workers, from bin men and classroom assistants to school heads and NHS chief execs.

The principle since the post war social contract has been that the state pension is funded from NI contributions accrued by the Treasury. In contrast, public sector occupational pensions are funded through a mix of individual contributions and employer (central or local government) contributions paid into conventional pensions funds in much the same way as private sector pensions. These latter arrangements vary widely between different working groups. School teachers’ contribution and pension rules are very different from low paid council workers. Local government workers have a completely separate (and fully funded) scheme; civil servants are part of the overall Treasury fund.

So making changes to the system is complex and needs careful negotiation to get a the right balance of fairness between new and long standing public employees on the one hand and the wider tax paying public on the other. Negotiations which have been under way between the DWP and unions representing the main public sector workers groups for some time. Despite what the tabloids rant on about, the unions have always been ready to negotiate a long term solution.

Enter Danny Alexander, Chief Secretary to the Treasury, with his speech to the IPPC last Friday. In a 20 minute, rapidly delivered monologue, Mr Alexander did huge damage to the chance of a negotiated settlement. A settlement that was there to be negotiated and which would have opened up long term solutions to the pension problem created by the success of the NHS and other social reforms in delivering a longer-living society. The Chief Secretary laid out exactly what the coalition intended to do effectively predetermining the outcome and making the negotiation sessions still to come this week and next meaningless at best.  Now Hutton himself has warned that the coalitions approach risks driving many public sector workers out of the schemes altogether.

Why did he do it? He’s been closely involved in the negotiations, so I hope it wasn’t political naivety.

So was it deliberate? A tactic in an overall strategy to provoke the public sector unions into strikes and other protests that would allow the coalition to blame the unions for undermining the economic recovery, neatly getting him and Osborne off the hook for car-crashing growth? Only this week, ONS figures highlight the growing gap between government rhetoric on spending cuts and the actual level of government borrowing.

Working out a fair, long term solution for public sector pensions needs serious – and non party political –engagement between the government and the different public sector groups affected. Its too important to be rushed, or conducted by public posturing. Danny made a well reasoned case for change in this week’s Inverness Courier. Why do his actions in London seem driven by a very different agenda?