Pensions, the public sector and tomorrow’s strike

Wednesday sees a strike by public sector employees. There seems to be a lot of spin by both Government and unions over the strike, which may affect public services in many different areas.

One of the unions, Unison, explains they are striking “to defend their pensions, after they voted overwhelmingly to join the TUC co-ordinated day of action”.

The Government proposals – and it isn’t easy to find them (I have tried: they are pretty well hidden) – stem from the Hutton Report, published last year.

Hutton’s recommendations included (taken directly from the executive summary of the report [pdf])

  • pensions will continue to be an important element of remuneration
  • public service schemes, along with a full state pension, deliver at least adequate levels of income
  • Government must honour in full the pension promises that have been accrued by scheme members: their accrued rights
  • members of the current defined benefit public service pension schemes should be moved to the new schemes for future service, but the Government should continue to provide a form of defined benefit pension as the core design
  • a new career average revalued earnings (CARE) scheme should be adopted for general use in the public service schemes
  • Government should increase the member’s Normal Pension Age in the new schemes so that it is in line with their State Pension Age

There are also several recommendations about the administration of public sector pension schemes and the transparency and publication of data about them.

Basically, then, the Hutton report recommends that members of public sector pension schemes get to keep what they’ve got – their accrued rights – but will be moved to new schemes for future rights.

The HM Teasury website sets out the Government’s proposals:

If you are currently in a final salary scheme, when the changes come into effect in 2015 your pension will be worked out differently. Your pension will be worked out using the salary you earn in each year during your career rather than your salary at retirement.

Your retirement date will be changed so that it is the same as the date you take your state pension.

You will be able to retire earlier than this and no one will be forced to work longer. Current public service workers can draw the full pension benefits they have earned under their current pension scheme at their current normal pension age. For many people who are near retirement, this will be 60. However, you may choose to work longer and earn more pension benefits under the new scheme.

(This webpage isn’t dated; I assume it sets out the earliest proposals from June 2011, rather than the amended proposals set out in November 2011.)

The first paragraph quoted sets out the new pension schemes, the second changing the usual retirement age in line with the state pension, the third assuring accrued pension rights: what was set out in Hutton.

This is a similar situation to that faced by many employees in private sector pension schemes: you keep the pot you’ve built up so far, but the scheme is changing for future pension accruals.

This is of course a change to terms and conditions; but it strikes me as different to the rhetoric being laid out by the unions. It does represent a decrease in remuneration – pension rights are effectively deferred salary, and by increasing the age at which a pension can be taken, the Government is reducing the total value of the pension. But the protection given to accrued rights means it is only future rights that are being changed.

Dave Prentis of Unision is quoted as saying “This is a fight not just about whether it is right to increase contributions, but it’s a fight for the survival of public service pension schemes.” Not according to Hutton or the Government it isn’t – it is a change to the schemes.

Jonathon Ledger of Napo said “[Government’s] attack on their pension entitlement is not fair, not reasonable and not necessary. They have joined the hundreds of thousands of hard-working public sector workers who are uniting in defence of their pensions – pensions earned after years of demanding work on behalf of our communities.” This is ambiguous, but I think wrong – the pensions earned so far – the accrued rights – are protected.

And so on and so forth.

I started writing this post to support my view that public sector workers were right to strike. I have changed my mind: I had the misconception that the Government policy threatened the pension rights earned to date. It clearly doesn’t. What is being changed are the future benefits. Public sector workers are indeed being asked to work longer and pay more into their (new) pension schemes – and if that happened to me, I’d probably want to strike, too. But they are not losing any of their earned rights to date.

Any worker is free to strike; any worker is free to move to another employer. In the current economic circumstances (and I write this as they are debating the Chancellor’s autumn statement on the radio: it doesn’t look pretty), that right to move to another employer is probably fanciful.

But I can’t help thinking the public sector workers – whether they strike or not – are on a hiding to nothing. And I no longer support their strike.

[Many of the links in this post came from the Guardian. This is because the Guardian had the easiest to navigate archive of articles relating to the public sector pensions proposals and Wednesday’s strike. I was shocked how hard it was to tease out the issues from all media sources, including the Guardian.]

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