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 Council

Response to 'The Pension Apartheid' article by Ron Hewitt in Sunday Herald (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 sector pensions.

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 per year.

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 benefits.

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 capital.

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 companies.

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.