Fishburn Hedges

16.09.2011

The public sector pensions debate hots up with every passing day.

Now the Guardian – hard on the heels of the Financial Times – reports that ‘a furious row’ has broken out between Lord Hutton, eponymous author of the recent report on pensions, and three of the UK’s largest trade unions.

The unions argue that public sector pensions are affordable and that costs are actually declining as a proportion of GDP, whereas Hutton points out that the decline in cost is predicated on the very reforms to pensions that the unions are so keen to strike against.

We may well see mass strike action in November as public sector workers look to protect pensions that – rightly or wrongly – are typically far more generous than those available to their private sector peers.

But let’s hope too that we see a continuation of dialogue between all concerned.  Public sector pensions may well be affordable following the changes that Hutton suggests, both increased contributions from workers and a preparedness to work for longer.  But even that might not make them fair – and fairness might prove to be as important as affordability when persuading taxpayers (many of whom can only dream of membership of defined benefit schemes) that their hard-earned tax pounds are being spent reasonably.

The private sector has not set a great example here. Companies have unilaterally cut benefits under their own defined benefit schemes or indeed have closed them completely – often while presiding over huge increases in remuneration for those making that very decision.  Fair?  Hardly.

Yes, the costs of pension promises made long ago have rocketed thanks to increased longevity and poor investment returns (among other things), but surely companies should do more to recognise their responsibilities and the commitments that they made.   

So perhaps the unions are right to play hardball.  Public sector pensions undoubtedly need reform, but to emulate the private sector in a race to the bottom would be a grave mistake and a disaster for their members.

Let’s have reform by all means, but let’s do so with an eye on the sort of society that we want to have in the decades to come.  To leave generations to fend for themselves in a world deprived of decent – and that usually means defined benefit – workplace pensions might bring us problems way beyond the costs and inconveniences of the November strikes.

Andy Berry is head of Fishburn Hedges’ Pensions Advisory Unit