Heather Wakefield 13 September 2011

Debunking the pension myths

The attack on local government pensions is not about affordability, fairness, or even about efficiency, it is based on propaganda and ideology, says Heather Wakefield.

The fight for a decent pension for millions of public sector workers has been at the top of the agenda at TUC Conference this week.

UNISON has been hoping for the best, but preparing for the worst, as the Government pushes ahead with its plan to make staff work longer, pay more, but get less on retirement. Paying in sums they simply cannot afford, which go straight to the Treasury to plug a hole they did not cause.

The Government's attack on pensions is not about affordability, fairness, or efficiency, it is based on propaganda and ideology.

Millions of staff have been left reeling by the proposals, on top of huge cuts and rising inflation. It will have also worried the public into thinking it is facing a massive bill for public sector pensions, when in reality, it is not.

Social workers and home carers are among the workers who accepted that their jobs are demanding. But they believed that they would receive a decent pension at the end of it, or if they retired early due to ill health.

The Government has ripped up this contract and is forcing staff to cover the costs left by the greedy bankers - who caused the economic crisis – and peddling the myth of ‘gold-plated’ pensions. In reality, the average pension in local government is just over £4,000, falling to £2,800 for women – more like ‘tin-foil’ plated. The local government pension scheme (LGPS), which more than one million low paid council workers save into, has funds worth more than £160 billion. UNISON reminded the Government that the final salary schemes were thoroughly and comprehensively renegotiated in 2006, with changes brought in to make sure they stay affordable and sustainable for the long term. The renegotiations meant that the council workers’ schemes are cash rich. Research by independent experts such as the Institute for Fiscal Studies (IFS) and the Chartered Institute of Public Finance and Accountancy (CIPFA) has already proved that both schemes are affordable and sustainable for the long-term, and that the cost to the taxpayer of public sector pensions has already fallen. The local government scheme could fund all its liabilities for 20 years, without a single penny more in contributions. It is one of the biggest institutional investors in the world - equivalent to 12% of UK GDP, but represents a much higher percentage of the economy in poorer regions - 19% in the North East and Scotland, and 23% on Merseyside. The amounts in the local government pension funds outside London are 100 times greater than the Government’s ‘Big Society Bank’ of £1.2billion. Yet the Tory-led coalition announced a 3% hike in employee pension contributions even before the review had started - this is a 50% increase for many. Council workers already pay between 6 and 8% of their salary into their pensions. The extra demanded is a huge hike, and with two thirds of local government workers earning under £18,000 this is effectively a tax on low paid workers. Studies show that if public sector pensions contributions are too high, workers will opt out and schemes will collapse. Pricing these low paid workers out of saving for their retirement would lead to problems on a grand scale for taxpayers. A multi-billion pound welfare time bomb may go off later on down the line. A mass opt out would also fuel an increased take up of NHS and council care services. The 5% worth of GDP already being spent on state pension benefits would shoot through the roof. Even if the schemes survived in a different form, this would hit cashflow, destabilising the schemes, tipping the balance into cash negative. The local government scheme could be forced to realise its investments earlier than planned. The knock-on effect, aside from taking money out of some of the UK’s largest companies, would be to reduce long-term benefits from investments, significantly pushing the cost of pensions up. Even retired workers have not escaped the Government’s pensions raid, as a switch to using the CPI rather than RPI to calculate pension increases will see millions of pensioners suffer from a drop in the value of their pensions of around 15%. The real pensions crisis is not in the public sector, but in the private sector, where two thirds of employers do not pay a single penny towards their workers’ pensions. This will force millions into poverty in their retirement, and will leave the taxpayer with a multi-billion pound means tested benefits bill. Yet UNISON members are also being forced into poverty. These workers have already being hit with a pay freeze, which is stretching for three years for even the lowest paid council workers, at the same time as rising costs - the pensions attack could lead them to breaking point. The lack of real talk with the Government on this has set us on a collision course, heading for real, sustained industrial action. We will fight to protect a further attack on members’ pensions, when we know they are sustainable and affordable for the long term.

Heather Wakefield is head of local government at Unison.

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