As postal workers, train drivers, nurses, rail engineers, airport baggage handlers, Border Force and ambulance staff strike, public sector workers can have no complaint over their pensions. They get three times as much retirement income as workers in the private sector. The trillion-pound pension liability is bigger than the UK’s entire debt and is funded by taxpayers.
The UK’s private sector pensions system was once the pride of the world as millions of workers benefited from “gold-plated” final salary pensions that paid a guaranteed income for life. Today, it lies shattered and broken.
The number of active members in private sector “defined benefit” schemes has slumped by almost two-thirds in a decade, the latest figures from The Pensions Regulator show.
By March, members totalled just 785,744, down 2.1 million a decade ago.
The collapse began 25 years ago on July, 2, 1997, when Labour Chancellor Gordon Brown abolished tax credits paid to pension funds and companies.
His stealth tax grab cost firm billions every year and made final salary schemes too expensive.
That has been described as “the day the defined benefit pension scheme died”. Brown has a lot to answer for but there is one area where defined benefit final salary pensions are still thriving.
In the public sector, there are still 6.83million active members, although this is down from 7.48million last year.
Public sector workers can look forward to guaranteed index-linked pensions for life, paid for from taxation.
The total bill is a staggering £2.6trillion.
That is greater than the entire public sector debt, yet does not appear on the government’s balance sheet.
Stuart Price, partner and actuary at Quantum Advisory, said while private sector final salary schemes have to be funded, “lavish” public sector schemes are generally unfunded, like the state pension. “Current taxes pay for today’s pensions, and the next generation’s taxes will pay for the current workforce when they retire.”
The difference in retirement income is stark, figures from The TaxPayers’ Alliance show. A 25-year-old public sector worker on the national average wage could retire at 68 with a pension of £17,563 a year, compared to £6,412 a year in the private sector.
That’s £11,151 more every year, which would add up to £223,020 extra over the average 20-year retirement.
Price said the public sector pensions system is “unaffordable” and unlikely to survive.
Yet it would be a brave politician who took on public sector unions over this issue and Ministers have a good reason to brush it under the carpet.
That’s because MPs also enjoy gold-plated defined benefit pensions, too.
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MPs typically earn an inflation-linked pension each year of 1/51 of their salary, similar to the NHS, teachers and civil servants.
By contrast, most private sector workers are shunted into inferior “defined contribution” schemes. How much they get at retirement is determined by how much they contribute, and how their investments grow.
This means they are taking on all the investment risk themselves, said Gary Smith, financial planning director at wealth manager Evelyn Partners. “The message for today’s private sector workforce is that they have to take responsibility for their pensions and take retirement planning seriously.”
By contrast, public sector workers continue to benefit from heavily subsidised pensions and guaranteed payouts, Smith said, although today the retirement income is based on a career average salary rather than the final salary.
Public sector workers are going on strike for double-digit pay rises today, but can look forward to generous pensions tomorrow.
Private sector workers aren’t striking, and will get neither.