The publishing of Lord Hutton’s final report on public sector pensions in early March 2011, prompted a hot debate about the fairness of the recommendations and the necessity of making changes.
Years ago it seemed to be widely recognised that whilst salaries in the public sector generally lagged behind those of the private sector, pensions in the former were better and this seemed to be acceptable in the main as a fair situation. However, two key factors have more recently upset this balanced view; firstly, we have discovered that we are living longer and therefore our perception of the comparative value of the better public sector pension has significantly changed. Secondly, in the private sector some raiding of unprotected pension funds to support business finances and a decline in pension provision generally in the sector have combined to widen the gap between public and private pension prospects.
So what are some of the facts and observations about current public sector pensions according to Government and umbrella pension provider organisations?
- The context for savings and pensions has changed and at a time of tight national financial constraints and post recession instability, the affordability of public pensions has become part of a complex mix of factors.
- So what are some of the facts and observations about current public sector pensions according to Government and umbrella pension provider organisations?
- About one in five UK citizens have some entitlement to a public service pension, with dependants quite a sizeable minority.
- Public service schemes paid out £32 billion in 2008-09, about two thirds of the cost of the basic State Pension. This might be perceived as an unfair burden on the majority of taxpayers.
- The average public sector pension paid to pensioner members is around £7,800 per year and around half of these receive less than £5,600 per year. These are hardly the ‘gold-plated’ pensions described by some critics.
- Current pensioners can expect to spend about 40 to 45 per cent of their adult lives in retirement if they retire at 60, compared with about 30 per cent for pensioners in the 1950s. If scheme Normal Pension Ages are linked to the State Pension Age as the Commission recommends, the proportion of life in retirement is projected to remain at about a third over the next five decades. Such a change is clearly a threat to the conditions of service for some public sector employees, with fears of having to work for much longer. But if we are all living longer, does this automatically mean that we are entitled and can afford a longer period of retirement? This seems to be an issue for all of us across both public and private sectors.
- Around 85 per cent of public service employees have some form of employer-sponsored pension provision, compared to around 35 per cent in the private sector. If this discrepancy is a fault and unfair, where does the blame lie?
If you want to find out more about planning pensions provision, contact one of the team who will be happy to help.
Sources: www.thepensionsadvisoryservice
HM Treasury – Independent Public Services Commision Report
