Fishburn Hedges

30.06.2011

It used to be the case that we thought we could afford to ignore all the boring stuff we got from employers or insurance companies about pensions.  Not any more.

For some time it’s been difficult to open a national newspaper and not be bombarded with the latest on the horrors of private sector defined benefit pensions; too expensive, massive deficits, closure to accrual and - ultimately - their withdrawal.

For too long, however, public sector pensions have been the proverbial elephant in the room, offering benefits that far outweigh those available in the private sector and at a cost that no private sector employer could possibly afford.  And that cost, let’s remember, is borne predominantly by the taxpayer.

So it’s undoubtedly right that action is being taken to address the situation.  And it’s interesting, as pensions guru Norma Cohen points out in the Financial Times today, that the proposed changes might actually lead to higher pensions for those in the public sector on lower incomes.  So why are the unions up in arms?  I suspect that they see the changes now proposed as just the thin end of the wedge, a precursor to still higher contributions and later retirement in the future.  They may well be right, not least as the forces that have driven up the cost of providing defined benefit schemes – in particular huge increases in life expectancy – continue to apply.

So, it’s reassuring to hear that talks are continuing, but the bottom line is that, however much we might wish otherwise, the country can no longer afford to offer pensions that would see retired public sector workers receiving significantly more than their private sector neighbours.  No-one wants to see the pension of a lowly paid council worker reduced, but, equally, few would argue that the £3 million pension pot of a Chief Constable retiring at 55 is what was envisaged when these schemes were set up.

It would perhaps be good to see some leadership from The Coalition and indeed from the unions themselves here.  To argue for lower public sector pensions while leaving MPs’ own incredibly generous scheme untouched is little short of crass. It might also be refreshing to hear too about the unions’ own pension schemes – a number of which have been closed in the face of huge deficits, presumably because they didn’t want to pass on the rapidly increasing costs of those schemes to their members.

As ever, communications will play a key role in addressing the pensions challenge.  We all need to be helped to understand pensions and what action we have to take to secure the income in retirement that we desire.  The language of pensions needs to change too; too few understand the jargon that the industry uses and therefore stand little chance of making properly informed choices.

The media has a key role to play here – and it’s one that, for the most part, is being played well.  Many of the nationals have journalists who cover pensions and present the stories in easy to understand language.  It’s a big issue and it’s getting the attention that it deserves.

Having finally grasped the nettle on pensions, let’s hope that we now see real change. Yes, it will mean lower pensions and longer working lives for some, but the state of our finances means that there is little alternative.  And if the past few years have taught us anything perhaps it’s that there is no such thing as a bottomless pot of government money; l’état, c’est nous.

Posted by Andy Berry