Public and Private Pensions: the myth and envy go on

So the Coalition is slightly backtracking on their plans to reform public sector pensions as reported by the BBC

There are an awful lot of myths about public pensions. One of the most pernicious is the percentage of GDP they consume i.e. they are unsustainable/unaffordable. However, the following quote is salient: “British North America Committee got headlines recently for saying that the cost of public sector pensions was 85% of GDP (the total wealth produced by the country each year). Their press release said: “Public sector pension liabilities are £1,177 billion, about £20,000 for every person in the UK, equivalent to 85% of GDP”

This is what David Lipsey, the chairman of Straight Statistics – a pressure group that campaigns against the misuse of statistics – said about this report: “The innocent might think that this means 85 per cent of our GDP in future is going to go to support those getting public sector pensions, leaving just 15 per cent for the rest of us. This is plain rubbish. The liability to pay public sector pensions is stretched over many, many years – from now until the last existing public sector employees dies. It is a statistical howler that would make an “O” level student blush to compare this with the figure for GDP for a single year. To make matters worse, we can safely expect GDP to increase over the years to come (if it does not, neither will pensions, reducing the actual liability). So the proportion of present GDP represented by the liabilities is even less relevant. What matters, if anything, is the proportion of future GDP that they represent.” NB: I’ve edited this to fit in a blog but the source is here

Now you could echo Mandy Rice-Davies’ line of “They would say that, wouldn’t they?” but it strikes me that David Lipsey is telling the truth.

The next myth is that public sector pensions are exceedingly generous. Well, they aren’t: “The average public sector pension is £7,000 compared with the average personal pension of £5,000.” Source Daily Telegraph  In the interest of fairness, I should mention that the Daily Telegraph is having a pop at public sector pensions. I don’t know about you but I don’t think £7k pa is generous. Better than £5k pa I grant you but generous??

I believe what the Coalition is doing is the old “politics of envy” trick. Divide and conquer is an old but effective trick. Yes, public sector pensions are a little better but this is principally because they don’t rely on annuities as do private sector ones. As an aside, public sector pensions weren’t raided by Gordon Brown either. However, in politics anything goes so our current government is trying to squeeze the  workers it is ideologically opposed to. If they alter the public pensions they will say, to paraphrase an old Dylan song: “You’ve got more than the blacks, don’t complain”. Dylan was describing how poor whites were controlled by the USA government but if you substitute private and public for black and white…it is the politics of envy.

I’d say rather than punish the public sector workers abiding by a long-term contract with successive governments over pay it would be better to address the legitimate pension issues for the private sector. Like lifting the requirement to buy an annuity, allowing a wider range of investment classes, compelling companies to provide a pension for their workers, stopping the directors from paying themselves huge salaries while leaving their workers pensionless, with a meagre wage and collecting tax credits from the tax payer to make ends meet. All of these would allow private sector workers to make sensible provision for their old age. But, of course that would upset too many applecarts wouldn’t it?


About ReidIvinsMedia

After working for many years in Higher Education I've decided to drop out and join the real world. Here I blog about my interests which include education, politics, backpacking, poker, photography and real ale.
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