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Pension myths – busted!

Government ministers and parts of the media have waged a long campaign against public sector pensions.

One of the biggest myths is that public sector pensions are gold-plated, unreformed and unaffordable.


Myth1: Gold-plated?

The average NHS pension is £7,500 a year, with women in the NHS receiving around £4,000.

This is what John Hutton said in the report of his Public Service Pensions Commission: ‘The Commission firmly rejected the claim that current public service pensions are ‘gold plated.’

A YouGov poll asked people what they thought the average public sector pension ought to be.

The average answer was £17,088. Nearly half (44 per cent) said it should be more than £15,000. Almost half (49 per cent) of respondents believed the average public sector pension is more than £10,000, and only 23 per cent think that it is less than £10,000.

So, the reality is that our pensions are in fact lower than the general public think they should be.


Myth 2: Unreformed?

Tough negotiations with the previous government resulted in an agreed deal to reform public service pensions, including the NHS, where it was introduced in 2008. The National Audit Office says this would reduce the future cost of pensions by 14 per cent.

Changes included higher pension ages for new starters and higher contributions in some schemes, including the NHS where the more you earn the more contributions you pay.

It also dealt with what everyone agrees is a difficult pensions issue: trying to predict how long people will live. If people live longer than expected, pensions will cost more than predicted.

Under the deal, the extra costs of unexpected increases in longevity would first be shared by employer and employees together. But the employer cost was capped from 2008 in the NHS, meaning that meeting the higher costs of any further extra increase in lifespan would fall entirely to members – not the employers nor the taxpayer.

Myth 3: Unaffordable?

The critics talk of a pensions time-bomb and say that the costs of public service pensions are out of control.

Pensions commitments go many years into the future. So working out what it would cost if every pension payment for decades to come had to be paid tomorrow morning produces a big, scary number.

But it is also a meaningless number. That is not how pensions are paid.

Both the National Audit Office and the Hutton Commission say the best way to measure whether public service pensions are sustainable is to work out the likely cost of future payments as a share of the wealth that the country will produce – what economists call gross domestic product (GDP).

This has been done twice in recent years. First after the changes negotiated with the previous government, and again, in April 2011, to take account of the switch from retail price to consumer price  indexation. This has lowered the annual increase for those receiving a pension.

As you can see from the graph, the costs of public sector pensions (excluding local government pensions) as a proportion of GDP go down, even in the worst case. This is without any further changes that the government is trying to impose.

Finally, your NHS pension scheme is cash-rich. For example, in 2010, it paid £2 billion more into the Treasury than was paid out in pensions.

Key facts about your pension

The deal negotiated with the last government made costs stable, according to the National Audit Office.

The chair of the House of Commons Public Accounts Committee stated:

‘Government projections of the future cost of public service pensions suggest that the changes made in 2007-2008 will stabilise costs at around 1% of GDP, thereby bringing substantial savings to the taxpayer. This would be a significant achievement.’ (26 May 2011)  Source: www.parliament.uk

Before this government made any changes at all, therefore, public service pensions had both been reformed and made affordable.

Experts agree that these negotiated changes reduced the cost of schemes by 10 per cent.

An even more sophisticated exercise was done for the Hutton Commission. This was based on the switch to consumer price indexation as well as the 2007-8 changes.

Predicting the future can never be exact, so this exercise looked not just at the most likely cost, but at best and worst cases as well. This is why the graph line shown above gets thicker as it moves into the future.

More information  www.csp.org.uk/pensions; www.pensionsjustice.org.uk;

Vote Yes! for your pension

 

On 31 October, the CSP will be launching a strike ballot with a recommendation for a yes vote.

It was a very difficult decision for the Industrial Relations Committee. No-one wants to strike.

But we felt that only this action will persuade ministers to sit down with us and engage in serious and meaningful negotiations.

The government’s proposals will have huge and very detrimental implications for public sector workers, including NHS staff. The government wants us to pay up to 50 per cent more in contributions by April 2014, a rise that will be phased in from April 2012.

It also wants us to work up to eight years longer, depending on your age and whether you are in the 1995 or 2008 section of the NHS pension scheme.  

And it wants, following legislation to be enacted by Parliament in the 2012/13 session , to replace our final salary pension scheme with a ‘career average’ scheme which could reduce your pension by 10-25 per cent, depending on your individual career path.

Unfair changes

That’s on top of an imposed change from April this year to the method of indexing our pensions that will cut, on average, an additional 15 per cent off our pensions.

We don’t think the changes are fair or necessary.

The CSP and other health unions have written letters to MPs and ministers. We’ve have lobbied Whitehall officials. Above all, we have been engaging for months in formal talks with NHS employers and the government.

The TUC, the CSP and other health unions are committed to continuing the talks with government ministers and NHS employers. But the government has so far failed to properly engage in negotiations and it has been impossible to make any real progress.

And yet they want to move ahead with huge and detrimental changes to your pensions by the end of the year. Even though the last reforms to the pensions scheme, implemented in only 2008, took around three years of intense and detailed negotiations.   

It is critical that we – together with millions of other NHS and public service workers – send a clear and unequivocal message to the government.

Our aim is to get the government to engage in serious and meaningful negotiations. But we need your support.

So vote Yes! to protect your pension.

Alex MacKenzie
Chair of CSP Industrial Relations Committee

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