Public-private wage divide gets 50% wider

Sir_Humphrey

Another point about pensions. If the government decided to unlaterally rip up our contracts on existing pensions, not only would that be against the rule of law, it would set a precedent for any private sector employer to do the same. Without contract law, there can be no functioning economy.

Old_Slaphead

Sir_Humphrey wrote: »

Another point about pensions. If the government decided to unlaterally rip up our contracts on existing pensions, not only would that be against the rule of law, it would set a precedent for any private sector employer to do the same. Without contract law, there can be no functioning economy.

Whilst not invoking this retrospectively, many private FS schemes have changed to (a) no new employees joining and/or (b) no further accruals for existing members.

Re. changing the rules - GB didn't baulk at introducing taxation of private pensions thereby reducing benefits by £5billion pa. An unfair and additional stealth tax on none public sector workers!

Sir_Humphrey

Old_Slaphead wrote: »

Whilst not invoking this retrospectively, many private FS schemes have changed to (a) no new employees joining and/or (b) no further accruals for existing members.

Re. changing the rules - GB didn't baulk at introducing taxation of private pensions thereby reducing benefits by £5billion pa. An unfair and additional tax on none public sector workers!

a) has already happened. Labour failed to introduce b). I judge that b) would not save enough money to make it politically worthwhile as I have explained above. Remember, it would have the effect of increasing salaries to compensate (mainly at the higher levels), thus negating any saving.

The pensions holidays taken by companies in the 1990s, and the extra taxes on private pensions from GB were both wrong things to do. But adding an extra wrong in shafting other workers does not make a right.

Demographic issues affect both the public and private sectors. At the end of the day, the public sectors cannot externalise pension costs as the private sector does. If people end up impoverished in old age, the state and taxpayer will pick up the tab whatever happens. If older people cannot spend as much, the whole economy suffers.

A final point is that someone of my age (almost 29) will be paying for these retirees. I would also expect the demographic issues to be less acute by the time I retire, as the bulge of 1945-55 baby boomers will be mostly dead by then (my current year of retirement at 60 would be 2040).

EDIT: IMO the best way to pay for increased longevity is by improving productivity. Also, people have been living longer and longer ever since the state pension started in 1909, and the system has not collapsed. I believe similar arguments were made about longevity several decades ago.

If people deferred more consumption into old age, that would also help. This is in effect what the current public sector pension arrangements force us to do.

Old_Slaphead

Sir_Humphrey wrote: »

The pensions holidays taken by companies in the 1990s, and the extra taxes on private pensions from GB were both wrong

If memory serves, I think it was the Tories in mid 1990's who introduced a punitive tax on pension surplusses thereby encouraging many schemes to run down their funding.

Another example of Gov't meddling leading to unintended consequences!

Sir_Humphrey

Old_Slaphead wrote: »

If memory serves, I think it was the Tories in mid 1990's who introduced a punitive tax on pension surplusses thereby encouraging many schemes to run down their funding.

Another example of Gov't meddling leading to unintended consequences!

Companies with large pension funds were also vulnerable to asset strippers, which may explain quite a lot too. I am certainly not going to defend every decision government makes. Just like the private sector decisions, some are good, some are bad.

I would point out that without government, there would be no rule of law at all. A bit more 'meddling' might have prevented our banking system from imploding. Without 'meddling', none of us would have any savings left at all as the banking system would no longer exist.

Rosie75

There is some commentary on the report the OP mentioned in the Guardian today:
http://www.guardian.co.uk/commentisfree/2009/feb/10/taxpayers-alliance-public-sector
The Guardian, itself, is hardly politically neutral of course, but - unlike the Daily Mail - it is at least capable of evaluating the very questionable methodology and political bias of this report.

Andy_L

Old_Slaphead wrote: »

If memory serves, I think it was the Tories in mid 1990's who introduced a punitive tax on pension surplusses thereby encouraging many schemes to run down their funding.

Another example of Gov't meddling leading to unintended consequences!

Can't remember, Lamont started the abolition of advanced corporation tax about then, which Brown took to it's logical conclusion (much as he did with MIRAS). TBH neither party are covered with glory when it comes to pensions

chewmylegoff

Sir_Humphrey wrote: »

The benefit of promotion is reduced, particulary for those near the end of their careers. It is not uncommon for someone to join as an AO in their twenties, and reach HEO by about fifty. A switch to career average clearly reduces the financial benefit in gaining promotion.

A promotion generally gains someone about £4-5k PA at the lower levels. So the reward for promotion for a someone aged fifty is about £50000 over ten years which is not much when pensions are taken out of the equation. HEOs have a lot more responsibility and a heavier workload than EOs.

from my experience of managing EOs the difference between EO to HEO was non-existent in terms of required work load. the HEOs still went home at 5pm! personally i found there to be no particular difference between the workload i had at HEO, at SEO or at G7; the G7s still went home at 5pm! may be different in other departments, of course.

anyway, that's not all particularly relevant - the point remains, the individual may not benefit as much from a promotion under the new system, but they do still benefit. they are not incentivised to avoid promotion - you still get less from not being promoted.

I won't comment too much on your expectations about the future. At the end of the day, if we lost our pensions, market forces would push up our wages (after a short lag). It would also damage the economy by removing a lot of structural demand in the short run until wages rose to compensate.

would they though - do you think if the civil service suddenly didn't offer pensions, that they would not have any employees? i don't agree at all - in my experience most people don't really care about their pension contributions at all. all they care is how much they are getting paid now.

EDIT: To summarise, I think you are simply extrapolating existing trends in employment conditions into the future. I do not think this is valid as it pushes present trends too far into the future.

nothing to do with employment conditions - everything to do with ageing population and very basic maths.

as a final aside, if it takes you 25 years to get promoted from EO to HEO then (a) you're not much good and (b) should you really get a pension which only takes into account what you earned in the last couple of years of your job before you exit on early retirement. career average seems more appropriate really - and is the inevitable bridge between final salary and money purchase.

carolt

chewmylegoff wrote: »

as a final aside, if it takes you 25 years to get promoted from EO to HEO then (a) you're not much good and

Not fair - you may be very good - at being an EO.

I know of a chap who was an AO - none of this EO business! - and got an honour (MBE?) for being exceptionally good at counting paperclips or whatever, for 40 years.

The point was, his role was lowly, but all part of the greater picture, and he fulfilled it as well as it could be fulfilled and to the best of his ability. Not everyone is a graduate or is capable of it, but some of them are darned good at tasks that wold drive many graduates round the twist.

Former_Spice

Sir_Humphrey wrote: »

Another point about pensions. If the government decided to unlaterally rip up our contracts on existing pensions, not only would that be against the rule of law, it would set a precedent for any private sector employer to do the same. Without contract law, there can be no functioning economy.

Already happened to around two million people in Local Government Pensions. Used to be for example 25/80 of salary at age 60 (assuming employees paid for it themselves for 25 years) which is for example 25/80 of £20K in a mid paying job making a pension of £6K(a gold plated fat cat 6K, the Daily Mail says so - it must be true)

Unilaterally cut by a quarter down to a (gold plated fat cat) £4.5K for those having the cheek to ask for their own money back at 60.

Nobody outside the people effected cares and most believe tabloid nonsense that under £100 a week is a gold plated fat cat and that it's entirely taxpayer funded. Sets an obvious precedent to repeat it or apply it to other parts of the public sector.