Tag Archive | "public sector pensions"

Gordon Brown’s review on pensions for MP’s

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Gordon Brown’s review on pensions for MP’s

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Over the past 10 years or so, any final salary schemes within the private sector have had to be curtailed or withdrawn.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

Posted in General, Labour | Comments (5)

Forget bailout, what of public sector pensions?

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Forget bailout, what of public sector pensions?

When Gordon Brown became Chancellor of the Exchequer, one of his first tasks was to raid the pensions of the private sector, something that has provided the exchequer additional income of over £10bn every year since. This put pay to many private sector, final salary schemes. Meanwhile the public sector, which of course includes politicians, have had no corresponding adjustments to their own final salary scheme pensions. So much for the Gordon Brown mantra of a “fairer Britain”, as with so many things he says, they are full of promise and have little or no substance.

The latest figures suggest that public sector pensions are worth more than 15 times those of private sector workers. So whilst the private sector has had to grasp the nettle and accept that final salary schemes are no longer sustainable, Gordon Brown, whilst he was at the treasury and now has prime minister has failed to deal with the issue. So lets put that in perspective. According to Ros Altman, one of Tony Blair’s own advisers, the average public sector worker will be entitled to a pension of £17,091, compared to the average private sector pension of just £1,086. Is this a fair Britain?

The public sector is invariable the first group of workers to vent their spleen about earnings. However, according to the Office of National Statistics, in 2007, the average public sector worker earned just under £26,000 per year, whilst the average private sector worker had to settle for a tad under £23,000. Unlike private sector pensions, public sector pensions are paid out of future tax revenues, not an annuity. This means that the treasury does not have to ‘purchase’ an annuity to pay for the pensions, nor do they have to include the liability on the treasury balance sheet. Even though the cost of these pension contributions are estimated to be £1 trillion. That’s right, more that twice the cost of the bailout or nearly 5 years worth of tax receipts. This is a scandal of monstrous proportions and yet Gordon Brown continues to swan around as if he is a financial genius. I would not trust him to hold my loose change!

Someone in the private sector would have to buy an annuity of £427,275 in order that they could benefit from the average pension of £17,091 enjoyed by the public sector. The average private sector pension scheme has a ‘pot’ of just £24,000! So they would be lucky to receive a pension of £1100 per annum. Given 1 in 5 of all workers are employed by the state, I doubt that my observations will curry favour with everyone, but it is a scandal and one that we shall all have to pay for.

If you thought Gordon Brown was taking this matter seriously, you would be wrong, here is a excerpt of what a treasury spokesman is reported to have said: “High quality pension provision is a key part of the remuneration package of public servants, aimed at maintaining a high quality public sector workforce. These pensions are fully costed and fully affordable.”  

Gordon Brown may choose to ignore public sector liabilities of circa £1 trillion, but the taxpayers of this country cannot, nor can our children who will be expected to pay the bill for Brown’s largess. At a time when everyone must look closely at their liabilities and consider tightening their belts, the opposition parties need to push this scandal right to the top of the political agenda, given the costs are not sustainable in the short-term, let alone the long term. Given that we know MP’s final salary schemes are amongst the best in the world, we should, perhaps, not hold our breath for an investigation anytime soon.

Posted in General, Labour | Comments (2)

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