The Treasury is attempting to play down suggestions that proposed changes to public sector pensions, which led to the biggest walkout in a generation six weeks ago, are a poor deal for taxpayers.
According to pensions consultant John Ralfe, the fight to get public servants to accept a later retirement age was at the very least a needless waste of political capital because "the total cost of the more generous, but later pension, is virtually the same as the cost of the current, less generous but earlier pension”.
Specifically, the cost to the taxpayer of having a retirement age of 60 was 31% of an average public sector worker’s salary. Post-reform, with a retirement age of 67, it will still be, er, 31%. Or, more precisely, will be that proportion of a teacher’s wage, 32% of an NHS worker’s salary and 26% of civil servants’ pay.
But the Coalition Government has rejected the findings, claiming that Ralfe has not factored in higher employee contributions. "This analysis is partial," a Treasury spokesperson told the BBC this morning, claiming that the state still stands to save “billions of pounds a year” thanks to the proposed changes that are still being hammered out with unions.
The spokesperson added: "It is based on stylised assumptions rather than an overall workforce model, and only includes one of three strands of public service pensions reform which will deliver savings, whereas the overall cost ceilings agreed with unions include all three."
Ralfe’s study concentrates on so-called “accrual rates” – the speed at which a pension builds up – which have increased significantly following the changes. For teachers, the new accrual rate is 1/57 of salary per annum; for health workers, it is 1/54 and for civil servants it is1/44, all of which are significantly more generous than the old arrangements.
Ralfe also argues that NHS and teaching pensions will increase automatically under the new scheme thanks to a pre-agreed percentage-over-inflation boost, as measured by the Consumer Prices Index. According to his analysis, these increases do not take into account whether a pay freeze is in place or if an individual’s salary rises at a lower rate.
Winners and losers
"The Teachers’ Pension Scheme and NHS have annual increases over CPI baked in, which gives no flexibility to have a pension freeze along with a pay freeze," said Ralfe in the report. "Pensions will still go up, even if pay is frozen."
The Government retorted, however, that it has increased the amount that workers must contribute to their pension pots to 3.2% of their salaries and switched the basis for inflation-linked rises to pensions from Retail Prices Index inflation to CPI inflation – measures that it claims will generate significant savings for taxpayers.
"The government has been clear that reforms to public service pensions will save the taxpayer tens of billions of pounds over the next few decades and significantly improve the long-term fiscal sustainability of this country," the Treasury spokesperson said.
But critics have been quick to point out the changes had already been forced through before the national strike last autumn and that they were not the major source of acrimony between the Cabinet Office and the unions anyway. The major cause of unhappiness was instead the decision to raise the retirement age and introduce complex additional benefit claw-backs.
If public sector pensions are as generous as they were before – and significantly more generous than almost any available in the private sector – some may legitimately wonder why the Cabinet Office seemed so keen to pick a fight with unions over the issue in the first place.
Commentators have pointed out that there will be losers and winners, with fast-tracked, higher-paid younger staff tending to lose out. But it does appear that the majority of lower-paid staff will, as the Government has consistently argued, do pretty well out of the changes after all.
There is fault on both sides here –employers have communicated the benefits of the changes poorly and the unions employed the militant rhetoric reminiscent of the 1970s a bit too quickly. But the question now is whether a fight was picked that didn’t actually need to be fought.
