Date: 21 January 2010
Time for a reality check on public sector pension myths
by Mike Kirby, Convenor of public service union UNISON's Scottish
Response to 'The Pension Apartheid' article by Ron Hewitt in Sunday
Herald, 10 January 2010)
Ron Hewitt's recent Sunday Herald article entitled 'The Pension
Apartheid' took some of the myths favoured by the right wing press
south of the border, gave them each a wee tartan kilt and then
tried to press them into service as footsoldiers in a war against
decent public sector pensions in Scotland.
The argument by Hewitt, chief executive of Edinburgh Chamber
of Commerce, runs like this: public sector pay and especially
pensions are a burden on the taxpayer, a problem for the economy
and a major contributor to the current crisis. But Hewitt says
that the crisis provides "an opportunity for reform that
could put Scotland in a stronger position as the recovery takes
hold." He outlines options for reform all of which basically
mean the same thing: that public pay and in particular pensions
should be cut back.
We've heard all the pension myths before and once again it's
time for a reality check.
In the first place it is simply wrong to imply, as Hewitt does,
that the public sector is the cause of the current crisis.
He claims that "high levels of government spending, together
with inflated public-sector pay and conditions, act as a drag
on economic growth".
But the recession was not caused by governments running up massive
deficits, nor by public sector pensions - in fact it was caused
by banking fat cats who nicked off with the cream even as they
ruined the global economy. The public pursehad to bail out the
busted banks In fact, the public sector saved the day and averted
global economic catastrophe.
Now is exactly not the time to cut public spending, when the
public sector is acting to ensure and lead a recovery.
UNISON has outlined a no-cuts budget for the UK, including fairer
taxes, a curb on tax relief for the rich, a levy on financial
transactions and action on fat cat bankers and their bonuses.
Alongside these measures, cancelling Trident, levying a tax on
empty properties, improving occupational health in the NHS, getting
rid of central government private consultants, and bringing PFI
schemes back in house would raise more than £74bn without
the need for cuts. http://www.unison.org.uk/asppresspack/pressrelease_view.asp?id=1670
Secondly, the fact is that we can afford to maintain decent public
Hewitt states that "total Scottish public-sector pension
liabilities now stand at a staggering £65bn" which
he describes as a "mountainous sum" and argues that
the Scottish Government "faces a growing bill for pension
payment – an ever larger proportion of its budget..."
This mirrors the tired old myth about public sector pensions being
an unsustainable proportion of UK GDP.
In fact, UK Treasury estimates show the cost of paying public
sector pensions as a proportion of GDP growing from 1.5% of GDP
to 2% by 2027-28. Thereafter there will be a slight decline. This
is far from being an unfolding cataclysm.
As to "pensions apartheid", the real evidence of a
pensions divide is mainly to be found in the private sector where
bosses have been busy closing good schemes to workers, often while
making sure their own very large pensions are protected.
The TUC’s 2008 Pensions Watch study of 346 directors from
102 of the UK's top companies found that they were set to earn
a yearly pension of £201,700. This is 25 times the average
workplace pension that ordinary workers receive (£8,100).
Hewitt doesn't actually use the term "gold-plated"
about public sector pensions but he does describe them as "preferential",
"inflated" and even "cancerous". Strong stuff.
In fact, the value of the main schemes in the public sector for
new entrants are similar to a medium private sector final salary
scheme, at around 21% to 24% of salary on average.
And as for "inflated" or "preferential",
the majority of public sector pensioners have pensions of less
than £5,000. The average pension in local government is
around £4,000 per year, and half of all women pensioners
who have worked in the NHS get a pension of less than £3,500
It is vital income for people in their well earned retirement.
Indeed, if the quality of public sector pensions was substantially
reduced, many retired public employees would become reliant on
Finally, the public pensions which Hewitt criticises are not
wasted, but actually support the economy, by boosting spending
and demand, and of course, by investing in the private sector.
Recent research commissioned by UNISON from the Public Services
International Research Unit at the University of Greenwich shows
the value of public sector pensions as a source of investment
There are over 100 local government pension funds in the UK,
with a total aggregate value of about £145 billion in 2008.
To put this in perspective, this is as large as the combined sovereign
wealth funds of oil-rich states Kuwait, Qatar and Oman; and it
equates to around 13% of UK GDP.
LGPFs are major investors in the largest private companies on
the London Stock Exchange - in 2008 they had over £1 billion
invested in each of the top 4 companies - Royal Dutch Shell, HSBC,
BP and Vodafone; and owned at least 1.3% of 7 out of the top 9
These funds are more vital, rather than less, in the face of
a downturn in private investment.
Decent public sector pensions are affordable, they contribute
to the economy and provide a much needed source of investment
for the private sector.
UNISON Scotland believes that the UK Government should act to
ensure that every worker has a decent pension scheme, as Lord
Turner argued in his recent review.