Amongst all the dramatic events of this week, Gordon Brown has decided to announced a review into the cost of the final salary pension schemes offered to MP’s. Now, here is a man of action, we all know that when Mr Brown wants to grab the headlines with some ‘good’ news, he either announces a review or an inquiry. In the case of the former and, arguably the latter, nothing happens. In other words, say something, do nothing….the unnofficial cry of Gordon Brown and his Labour party.
Over the past 10 years or so, any final salary schemes within the private sector have had to be curtailed or withdrawn. In fact, some pension schemes have even collapsed completely because of the increased costs associated with Mr Brown’s tax attack on private sector and personal pension schemes. This tax grab has contributed in excess of £100bn to Treasury coffers over the past 10 years and ensured that many, many people that have contributed to pensions for most of their life, now have to struggle or rely on state handouts or means tested benefits. A real man of the people our Mr Brown.
Meanwhile, MP’s continued to benefit from what has been described as one of the best pension schemes in the world. Even taking into account that our MP’s have a gold-plated pension scheme, the total cost is marginal when compared with the actual cost to the taxpayer of funding the generous, final salary schemes offered to public sector workers. The additional cost last year, to the taxpayers of this country, for the pension scheme our members of parliament enjoy was £12m. Quite a lot of money when you consider that this top up is paid out of future tax revenues, rather than an annuity. However, the estimated cost of the public sector final salary scheme is, by contrast, staggering and rising fast!
Pension schemes for local government officers and MPs are funded but, five million people, including civil servants, teachers, NHS staff and members of the Armed Forces, are enrolled in schemes for which no money has been set aside. In 2006, the Government estimated the cost of these unfunded liabilities was £650bn, it has since been estimated that our public sector pensions deficit is £1,071 billion. Now that IS a big number!
According to the Treasury’s own figures, the annual cost of paying public sector pension schemes is 1.5% of GDP and this is expected to rise to 2% over the next 50 years. Lets put that into perspective, the annual cost to the taxpayer of these unfunded public pension schemes is currently £22bn, or if you prefer, equivalent to a reduction in direct taxation of 4p in the pound, or to put it another way, £900 for every family in the UK. But, over the next 3 decades, it is estimated by the IEA that this will increase to £76bn a year, enough to complete more than two banking bailouts or 250 new hospitals every year.
So, Mr Brown, lets see some action, not reviews. Yes, by all means he should tackle the issue of MP’s final salary pension schemes, but he must also, finally grasp the nettle in relation to public sector final salary schemes. A failure to do so will result in either, a significant increase in taxation or, an inability to honour the existing scheme. Average salaries within the public sector are now higher than those within the private sector, similarly pension schemes are on average, some 15 times more valuable within the public sector.
Ultimately the taxpayer is expected to fund this financial burden, in addition to an ever increasing headcount within the public sector and it does not take Einstein to work out that it is simply not sustainable, in a booming, let alone a contracting economy. It is high time that public sector pensions were brought in line with the private sector, in terms of the type of benefits and the way they are funded. It is time to act decisively, no doubt Mr Brown will once again, shy away from anything so commendable. Say something, do nothing
March 29th, 2009 at 10:49 pm
Hi,
This is an extract from someone else’s comment made in 2002!! Nothing changes!I would love to see this in the national press.
Why should we take any notice of pensions advice from politicians. This government will go down in history as the one that killed off the final salary pension scheme for the majority whilst at the same time enhancing their own pensions at our expense.
The original MP’s pension scheme was a 1/60ths scheme, which was broadly equivalent to the better schemes available from the best company final salary pension schemes. In 1983 MP’s decided that this was not good enough for them, and enhanced their scheme to a 1/50ths scheme, making it the very best available from any employer in the UK. Then immediately AFTER the last general election they decided that they should increase their salaries by 26% and further enhance their pensions by making it a 1/40ths final salary scheme. This is a 20% increase in their pensions for any given period of service! And no problem with security of the pension fund - it is all underwritten by the taxpayer. An MP can now reire on an index-linked maximum pension of 2/3rds salary after only 26 years service - or 5 general elections.
Their excuse was that MP’s sometimes have to give up their work involuntarily at elections. As though the rest of us never have to consider redundancy. At least an MP has security of employment for a minimum of 5 years, whilst for the rest of us a permanent job is effectively a rolling 3 month contract. For many it is a job for the next month.
And all this from a government who is mugging our pension funds for £5 billion a year because “prudent Gordon” said that most pension funds at the time were in surplus and they could afford it. Now that most funds are in deficit, has he stopped taxing them? No! He still takes £5 billion a year from them - taxing our future income now, and then again when we draw it!
So, please politicians, whilst you have your snouts in the trough, do not lecture us on what we need to do to provide for our own old age!
March 30th, 2009 at 9:06 am
@ Dave Powell: Thank you for commenting and adding this extract from a post in 2002. Nothing better demonstrates that this government was not listening to the ‘people’ at the time it decided to raid our pensions. As for self-interest, that is clearly demonstrable by their actions. This government is pathetic and self-serving, but then, so are all other MP’s who voted for an improvement in their conditions, if only employees were offered the same opportunity, the private sector would be bankrupt.
February 22nd, 2010 at 1:13 am
Politicians pensions, now I see why Ignatieff came back to Canada after half his life spent in the USA. I have an older brother gets a pitance of an old age pension though he was born in Canada and still Canadian living in the USA. Then not only Politicians Golden Pensions and perks and Government employee’s have it made with pensions and perks as long as there is a tax-payer. People in the private sector many with no pensions and one’s that have paid into a private plan have taken roll-backs whatever. Like what’s the differnce we are told to save for retirement. Wether we put money into and RRSP or a Pension Plan shouldn’t be a difference. Maybe we should be all employed by the Government.
October 7th, 2010 at 6:57 pm
A reminder to Gord–Goverment employees are also TAXpayers and Wee don’t all have “huge pension pots”
When we were /are on pitiful wages compared to the Private sector i don’t remember any outrage from the Private sector.
I chose to work for less money in the knowledge i would have a protected pension-i and my employer signed a binding contract-remember these. The Private sector had the opportunity to do something about their issues but as usuall bottled out and chose to whine about those that fought and will continue to fight their corner.
the next time you sign a contract for anything and it is not honoured remember YOU helped it to happen.
July 28th, 2011 at 2:51 pm
What this article fails to highlight is that while some public sector pensions are unfunded and will therefore fall onto the taxpayer to honour, those same public sector workers have been shelling out all their working lives into those pension schemes, but governments have just spent the money as it came in. Now, having spent the money paid in under those schemes, it is claimed that the pensions can’t be afforded! For years groups, such as teachers, said, Fund our pension schemes with the money you have collected. The government has said No way. Don’t worry you have our guarantee. Ha,ha.