ShadesWolf
10-23-2005, 15:47
The government caves in to the unions, the public sector booms, the bills mount... Was this the week Britain turned Eurosclerotic
The UK is heading for a major pensions crisis, which the government has made worse. I have a number of older friends at work who are very worried. They have contributed all of thier lives and now when they are a few years away from retirement the money they expected is quickly vanishing. Add to this the fact that unless you working for local government I expect people to have a very poor retirement. Recently my National Insurance contribution increased but at the same time my pension contribution was reduced. Now most people dont think about pensions or try not too. I have another friend at work who is about 40, he has negative equity on his house and no pension.
But all of this is private sector biased, however, it now looks like we will have a two tier class of pensioner. And the private sector version will be the poorer one. Is this not a little ironic as its my taxes that go to pay for the public sector pension.
560,000: the number of public sector jobs created in Britain since 2000 (out of 900,000 total new jobs)
5.8m : the number of public sector employees. Most are in final salary pension schemes
3.6m : the number of private sector workers in final salary pensio schemes
£690 billion: present liabilities of public sector pensions
42% : the ratio of public spending to GDP in 2004 (In 1990 it was 37%)
27% : the average shortfall in local government pension funds - To cover this liabilitiy taxes will have to rise
20% : The amount of council tax that already goes towards local government pensions
This is a long article but well work the read
By David Smith
The Times on Sunday October 23, 2005
Tony Blair seemed to be in a receptive mood when business leaders trooped into No 10 on Monday to set out their concerns about the state of the country. As tea and coffee were served, members of the British Chambers of Commerce explained their worries about obstacles stifling enterprise. Top of their list was the pensions time bomb.
It was vital, said the business leaders, that the government stick to its pledge to raise the retirement age of public sector workers from 60 to 65. Otherwise the colossal cost of pensions, ultimately paid by ordinary taxpayers, would become unsustainable. It would be bad for business, taxpayers and the country.
Only the previous day Alan Johnson, the trade and industry secretary, had said the case for raising the retirement age for civil servants, teachers, nurses and other government workers was “irrefutable”.
“It is demographic change,” Johnson had said. “We are healthier, living longer. The problem is that there are fewer people working, funding more people in retirement.
“For us to say to the private sector, ‘you have to work longer and save more money’, and to the public sector, ‘you stick with your retirement age’, is impossible.”
Blair listened politely to the delegation and the businessmen left convinced they had got their message across. No chance. Blair and his ministers had already decided to cop out. The next day, as Westminster’s attention focused on the Tory leadership contest, Johnson struck a deal with the public sector unions.
Existing employees would still be able to retire at 60 or even earlier; only those entering the public sector from next year would be required to work until 65.
The case for raising the public sector retirement age to 65 was not “irrefutable” after all. Nor will it apply to 1.3m local authority workers, who will secure a similar deal.
The unions were delighted. But for millions of workers in the private sector it is slap in the face. The government has already raided their pensions by imposing an additional £5 billion tax on them a year. It is also saying they will have to work longer. Now they will have to slog on to pay the pensions of contemporaries who have retired.
“They should have raised the public sector retirement age in the same way they’ve raised mine,” said Tracy Hoather, company secretary at Same Day plc, a courier company in Knutsford, Cheshire. “It’s me and my kids who are going to have to pay for it. My pension’s been robbed left, right and centre. I’ve been told I’ve got to contribute more and work until possibly 70.
“I went to a borough council meeting and they said they needed £400,000 this year to top up their pensions, so I said, when you top up my pension by £400,000 then you can stick some extra on my rates. But until then, get lost.”
David Frost, director-general of the British Chambers of Commerce, who led Monday’s Downing Street delegation, said: “The private sector has been told it will be have to work longer and longer but most people in the public sector will be able to retire at 60. We’ve got a two-tier workforce.”
Miles Templeman, head of the Institute of Directors, asked: “Who is running Britain for the taxpayer — the government or the unions?” As if to swaddle private business in yet more red tape, Johnson also announced a big extension of parental rights for workers. Paid maternity leave will increase to nine months, with the option of sharing three months of it with fathers. By the end of the parliament, paid maternity leave will be increased to a year. Fathers will be able to take up to six months of this — with a separate right to six months’ unpaid leave. Companies will also have to give workers a minimum of 28 days’ holiday including bank holidays.
For more than a decade the enterprise society created by Margaret Thatcher has brought rising prosperity to Britain. A thriving private sector has provided the money to invest in public services.
But now Blair, who claimed he would drive through public sector reforms, is ducking the tough decisions and creating a growing divide between public and private.
The furore over pensions is just one aspect of a wider phenomenon affecting the future of Britain. The danger is that the public sector will become employer of first choice, heralding the sort of sclerosis that afflicts continental Europe.
It used to be that “gold-plated” pensions compensated public servants for lower wages. But Labour has boosted public sector pay substantially, as well as hiring vast armies to be local government officials.
Official figures show that the median wage for public sector workers, £453 a week, is higher than the £408 for the private sector. While jobs at the top pay more in the private sector, this is not true across a wide range of positions.
Yet public sector pensions remain better than private sector provision. In one civil service scheme, employers contribute just 1.5% of salary, while the state puts in up to 18.5%.
A new report for the senior salaries review body notes that the pension benefits available for those retiring early from government service because of redundancy “significantly outstrip what is available in the private sector”.
Public sector workers also get more holiday. Only 3% of private sector employees with more than five years’ service get more than 30 days’ holiday a year, compared with 33% in the public sector. Public employees take more time off sick: the average is 10.3 days a year, compared with 6.8 in the private sector.
At the Department for Work and Pensions the average number of days taken off sick a year is 12.6. Absenteeism is so pervasive the DWP is planning to offer staff bonuses for turning up to work.
Despite all those sick days, public sector workers who retire in good health live two to four years longer than private sector retirees, according to a study by Hymans Robertson, an actuarial firm.
This imbalance between public and private is having a noticeable effect, as illustrated by the case of Jonathan O’Brien, 22, who joined the National Health Service graduate scheme and works for the Morecambe Bay NHS hospitals trust.
“The government pension scheme is massive; you retire at 60 and the benefits they pay out are much better,” he said. “And I get 27 days’ holiday. I’ve got friends who are on private sector graduate schemes and none of them gets as much holiday as I do, and none of them, as far as I know, has actually got a pension plan. I’m certainly not looking to move anywhere else.”
This “crowding out” by the public sector — by claiming the best talent — will undermine Britain’s ability to compete in future, economists warn. Last week’s decisions on public sector pensions, they say, were symptomatic of a government that has given up trying.
“We’re going down entirely the wrong track,” said Derek Scott, who as Blair’s personal economic adviser from 1997 to 2003 was often at war with the chancellor. “Gordon [Brown] lectures other people on how to run their economies but he should look closer to home.”
Under Labour, Britain has slipped down the international league tables. In 1997 the UK was ranked 5th for competitiveness by the World Economic Forum; now it is 13th.
“They’re just salami-slicing away our competitiveness,” said Ruth Lea, the economist who heads the Centre for Policy Studies.
“I find it hard to believe that people as intelligent as Gordon Brown and Tony Blair don’t understand it.
“There was always this incompatibility at the heart of new Labour between social justice and a dynamic, enterprise economy. Now we’re seeing the consequences.”
AMID the welter of criticism, the government was still trying to claim that last week’s deal was good for the taxpayer. “The fact is that the public sector retirement age will be 65 from now on for all new workers,” said an adviser at the DWP. “Staff turnover should mean it will become the norm quite quickly.”
That change will produce savings of £13 billion in the cost of public sector pensions over 50 years, the government says. Such claims, however, cut little ice with pensions experts. Stephen Yeo of actuarial consultants Watson Wyatt, estimates the government’s unfunded pension liabilities to be a staggering £690 billion.
Public sector pensions already cost £18.5 billion a year. In 30 years time, without any change to the retirement age, they will cost £31 billion (in today’s money).
Johnson’s tinkering will trim the cost, but only fractionally, to just under £30 billion. In fact, the gradual increase in the average retirement age of public sector workers will barely keep pace with rising longevity.
Yesterday the government actuary added another four months to typical life expectancy: a man retiring at 65 can now expected to live for another 19.4 years.
“If you compare public sector changes with what is happening in the private sector, it’s not an adjustment at all,” said Yeo. Private sector workers face having to save more and work longer. Their pensions will depend on what they save rather than what their final salary is.
So why did the government fail to act? From the outset, Blair and his ministers have worried more about strikes than easing the burden on taxpayers.
More than 1m public sector workers threatened a strike before the election when Johnson told them of his plan to increase the retirement age for public employees to 65 by 2013. Blair, alarmed by echoes of the “winter of discontent” that brought electoral disaster for Labour in 1979, told Johnson to back off.
The fact that the deal was approved by the Treasury was also significant, says Ros Altmann, a former Downing Street adviser on pensions. “Neither Brown nor Blair was willing to take the political pain of facing up to the public sector unions now, for the reward of lower costs in many years’ time.”
By the time the crunch comes Blair and Brown may well be drawing their own pensions. MPs have one of the most generous public sector schemes around. The prime minister can look forward to an annual pension of more than £100,000 if he remains an MP for another eight years.
Additional reporting: Ed Habershon, Robert Winnett and Gareth Walsh
The UK is heading for a major pensions crisis, which the government has made worse. I have a number of older friends at work who are very worried. They have contributed all of thier lives and now when they are a few years away from retirement the money they expected is quickly vanishing. Add to this the fact that unless you working for local government I expect people to have a very poor retirement. Recently my National Insurance contribution increased but at the same time my pension contribution was reduced. Now most people dont think about pensions or try not too. I have another friend at work who is about 40, he has negative equity on his house and no pension.
But all of this is private sector biased, however, it now looks like we will have a two tier class of pensioner. And the private sector version will be the poorer one. Is this not a little ironic as its my taxes that go to pay for the public sector pension.
560,000: the number of public sector jobs created in Britain since 2000 (out of 900,000 total new jobs)
5.8m : the number of public sector employees. Most are in final salary pension schemes
3.6m : the number of private sector workers in final salary pensio schemes
£690 billion: present liabilities of public sector pensions
42% : the ratio of public spending to GDP in 2004 (In 1990 it was 37%)
27% : the average shortfall in local government pension funds - To cover this liabilitiy taxes will have to rise
20% : The amount of council tax that already goes towards local government pensions
This is a long article but well work the read
By David Smith
The Times on Sunday October 23, 2005
Tony Blair seemed to be in a receptive mood when business leaders trooped into No 10 on Monday to set out their concerns about the state of the country. As tea and coffee were served, members of the British Chambers of Commerce explained their worries about obstacles stifling enterprise. Top of their list was the pensions time bomb.
It was vital, said the business leaders, that the government stick to its pledge to raise the retirement age of public sector workers from 60 to 65. Otherwise the colossal cost of pensions, ultimately paid by ordinary taxpayers, would become unsustainable. It would be bad for business, taxpayers and the country.
Only the previous day Alan Johnson, the trade and industry secretary, had said the case for raising the retirement age for civil servants, teachers, nurses and other government workers was “irrefutable”.
“It is demographic change,” Johnson had said. “We are healthier, living longer. The problem is that there are fewer people working, funding more people in retirement.
“For us to say to the private sector, ‘you have to work longer and save more money’, and to the public sector, ‘you stick with your retirement age’, is impossible.”
Blair listened politely to the delegation and the businessmen left convinced they had got their message across. No chance. Blair and his ministers had already decided to cop out. The next day, as Westminster’s attention focused on the Tory leadership contest, Johnson struck a deal with the public sector unions.
Existing employees would still be able to retire at 60 or even earlier; only those entering the public sector from next year would be required to work until 65.
The case for raising the public sector retirement age to 65 was not “irrefutable” after all. Nor will it apply to 1.3m local authority workers, who will secure a similar deal.
The unions were delighted. But for millions of workers in the private sector it is slap in the face. The government has already raided their pensions by imposing an additional £5 billion tax on them a year. It is also saying they will have to work longer. Now they will have to slog on to pay the pensions of contemporaries who have retired.
“They should have raised the public sector retirement age in the same way they’ve raised mine,” said Tracy Hoather, company secretary at Same Day plc, a courier company in Knutsford, Cheshire. “It’s me and my kids who are going to have to pay for it. My pension’s been robbed left, right and centre. I’ve been told I’ve got to contribute more and work until possibly 70.
“I went to a borough council meeting and they said they needed £400,000 this year to top up their pensions, so I said, when you top up my pension by £400,000 then you can stick some extra on my rates. But until then, get lost.”
David Frost, director-general of the British Chambers of Commerce, who led Monday’s Downing Street delegation, said: “The private sector has been told it will be have to work longer and longer but most people in the public sector will be able to retire at 60. We’ve got a two-tier workforce.”
Miles Templeman, head of the Institute of Directors, asked: “Who is running Britain for the taxpayer — the government or the unions?” As if to swaddle private business in yet more red tape, Johnson also announced a big extension of parental rights for workers. Paid maternity leave will increase to nine months, with the option of sharing three months of it with fathers. By the end of the parliament, paid maternity leave will be increased to a year. Fathers will be able to take up to six months of this — with a separate right to six months’ unpaid leave. Companies will also have to give workers a minimum of 28 days’ holiday including bank holidays.
For more than a decade the enterprise society created by Margaret Thatcher has brought rising prosperity to Britain. A thriving private sector has provided the money to invest in public services.
But now Blair, who claimed he would drive through public sector reforms, is ducking the tough decisions and creating a growing divide between public and private.
The furore over pensions is just one aspect of a wider phenomenon affecting the future of Britain. The danger is that the public sector will become employer of first choice, heralding the sort of sclerosis that afflicts continental Europe.
It used to be that “gold-plated” pensions compensated public servants for lower wages. But Labour has boosted public sector pay substantially, as well as hiring vast armies to be local government officials.
Official figures show that the median wage for public sector workers, £453 a week, is higher than the £408 for the private sector. While jobs at the top pay more in the private sector, this is not true across a wide range of positions.
Yet public sector pensions remain better than private sector provision. In one civil service scheme, employers contribute just 1.5% of salary, while the state puts in up to 18.5%.
A new report for the senior salaries review body notes that the pension benefits available for those retiring early from government service because of redundancy “significantly outstrip what is available in the private sector”.
Public sector workers also get more holiday. Only 3% of private sector employees with more than five years’ service get more than 30 days’ holiday a year, compared with 33% in the public sector. Public employees take more time off sick: the average is 10.3 days a year, compared with 6.8 in the private sector.
At the Department for Work and Pensions the average number of days taken off sick a year is 12.6. Absenteeism is so pervasive the DWP is planning to offer staff bonuses for turning up to work.
Despite all those sick days, public sector workers who retire in good health live two to four years longer than private sector retirees, according to a study by Hymans Robertson, an actuarial firm.
This imbalance between public and private is having a noticeable effect, as illustrated by the case of Jonathan O’Brien, 22, who joined the National Health Service graduate scheme and works for the Morecambe Bay NHS hospitals trust.
“The government pension scheme is massive; you retire at 60 and the benefits they pay out are much better,” he said. “And I get 27 days’ holiday. I’ve got friends who are on private sector graduate schemes and none of them gets as much holiday as I do, and none of them, as far as I know, has actually got a pension plan. I’m certainly not looking to move anywhere else.”
This “crowding out” by the public sector — by claiming the best talent — will undermine Britain’s ability to compete in future, economists warn. Last week’s decisions on public sector pensions, they say, were symptomatic of a government that has given up trying.
“We’re going down entirely the wrong track,” said Derek Scott, who as Blair’s personal economic adviser from 1997 to 2003 was often at war with the chancellor. “Gordon [Brown] lectures other people on how to run their economies but he should look closer to home.”
Under Labour, Britain has slipped down the international league tables. In 1997 the UK was ranked 5th for competitiveness by the World Economic Forum; now it is 13th.
“They’re just salami-slicing away our competitiveness,” said Ruth Lea, the economist who heads the Centre for Policy Studies.
“I find it hard to believe that people as intelligent as Gordon Brown and Tony Blair don’t understand it.
“There was always this incompatibility at the heart of new Labour between social justice and a dynamic, enterprise economy. Now we’re seeing the consequences.”
AMID the welter of criticism, the government was still trying to claim that last week’s deal was good for the taxpayer. “The fact is that the public sector retirement age will be 65 from now on for all new workers,” said an adviser at the DWP. “Staff turnover should mean it will become the norm quite quickly.”
That change will produce savings of £13 billion in the cost of public sector pensions over 50 years, the government says. Such claims, however, cut little ice with pensions experts. Stephen Yeo of actuarial consultants Watson Wyatt, estimates the government’s unfunded pension liabilities to be a staggering £690 billion.
Public sector pensions already cost £18.5 billion a year. In 30 years time, without any change to the retirement age, they will cost £31 billion (in today’s money).
Johnson’s tinkering will trim the cost, but only fractionally, to just under £30 billion. In fact, the gradual increase in the average retirement age of public sector workers will barely keep pace with rising longevity.
Yesterday the government actuary added another four months to typical life expectancy: a man retiring at 65 can now expected to live for another 19.4 years.
“If you compare public sector changes with what is happening in the private sector, it’s not an adjustment at all,” said Yeo. Private sector workers face having to save more and work longer. Their pensions will depend on what they save rather than what their final salary is.
So why did the government fail to act? From the outset, Blair and his ministers have worried more about strikes than easing the burden on taxpayers.
More than 1m public sector workers threatened a strike before the election when Johnson told them of his plan to increase the retirement age for public employees to 65 by 2013. Blair, alarmed by echoes of the “winter of discontent” that brought electoral disaster for Labour in 1979, told Johnson to back off.
The fact that the deal was approved by the Treasury was also significant, says Ros Altmann, a former Downing Street adviser on pensions. “Neither Brown nor Blair was willing to take the political pain of facing up to the public sector unions now, for the reward of lower costs in many years’ time.”
By the time the crunch comes Blair and Brown may well be drawing their own pensions. MPs have one of the most generous public sector schemes around. The prime minister can look forward to an annual pension of more than £100,000 if he remains an MP for another eight years.
Additional reporting: Ed Habershon, Robert Winnett and Gareth Walsh