Date: Sunday 29 March 2009

The real pensions divide: not between public and private, but between rich and poor

by Matt Smith, Scottish Secretary of UNISON

So you think public sector pensions are "gold-plated"? That council and health and government workers retire early on pensions like Sir Fred Goodwin?

Let us have your definition of a "gold-plated" pension. Would it be £50,000 a year? £20,000? £10,000? Would you drop as far as £3,800 a year? That is the actual level of the average pension for the UK’s local government workers - £3,800 a year. It is "more tin-foil than gold-plate", as UNISON's General Secretary Dave Prentis has said.

If you were to believe the myths peddled by the Daily Mail and organisations like the Taxpayers' Alliance, you might imagine that there was a "pensions divide" between an unfairly feather-bedded public sector and a private sector which provided nothing but sackcloth and ashes in retirement.

The real pensions divide is actually between rich and poor. And it is clearest in the private sector - the sector which gave you Sir Fred Goodwin and the "toxic debts" which led to the current recession.

Real gold-plate is to be found on the pensions that directors in the private sector continue to award themselves – often when running down their own staff pension schemes.

The TUC's annual Pension Watch report analyses the pensions of top UK company directors and the workers they employ. The report for 2008 found that: 

• The top directors in the FTSE 100 averaged a pension of £333,664 p.a. in 2008

• The average pension for all directors surveyed was £201,655 p.a.

• In comparison, the average occupational pension in the UK was £8,112 per year - and the average pension from the local government pension scheme was £3,800. The average director’s pension is therefore around 25 times higher than the national average, and 50 times higher than the average local government worker.

• The majority of directors were able to retire on a full pension at age 60. The normal retirement age for workers is 65.

The bosses make sure they are feather-bedded too. Pension Watch found that the most common accrual rate for directors was 1/30th, in comparison the most common accrual rate for all members of private sector final salary schemes is 1/60th. What that means is that directors on average accrue pension benefits twice as fast as both their own workforces, and indeed the public sector workforce as a whole.

And, last but not least, three quarters of the directors surveyed (76 per cent) were on final salary schemes.

In short, directors have schemes that deliver final salary pensions 25 times the national average, payable at 60, which accrue twice as fast as both their own workers and all public service workers.

That is the real pensions divide.

Yet we are constantly told by the CBI, the Institute of Directors, Chambers of Commerce and the Taxpayers Alliance that final salary pensions are not affordable for ordinary workers, especially in the public sector.

They want the public sector to follow the example of the countless private firms which have closed their final salary pension schemes, leaving millions of workers facing poverty in their retirement - and relying on benefits funded by the taxpayer.

There is indeed a scandal in the fact that public sector workers are more likely to be in a pension scheme than private sector workers - but the disgrace is that any person should be left to face poverty after a lifetime's work.

UNISON believes that everyone should have a decent and a fair pension. Our society should not be engaging in a ‘race to the bottom’ of pension provision. We should ensure every worker has access to a decent pension scheme. That should be about levelling up not down.

The argument that we "can’t afford" fair and decent pensions in the public sector is fallacious.

The Pensions Policy Institute (PPI) has found that the value of the four main public sector schemes (for the NHS, Civil Service, Teachers and Local Government) for new entrants will be similar to a medium private sector final salary scheme, at around 20% of salary on average. It also highlights that public sector workers tend to pay higher contributions into their pension schemes than their private sector counterparts.

We expect employers to contribute to the pensions of their employees - that is fair. The taxpayer is the employer of public sector workers, and that is why taxpayers' money (including that of public sector workers and pensioners themselves) is used to pay for pensions. But the taxpayer is not the sole funder. Public sector workers make full contributions themselves from their own pay, and the local government scheme is substantially funded by investments – just like private sector schemes.

The future should be one of fair and decent pensions for all. It should be equally fair - not equally unfair - for public and private sectors. That means challenging and eliminating the real pensions divide, between rich and poor.

(An edited version of this article was published in Scotland on Sunday, 29 March 2009.)