90% Public Sector Final Salary Pension Meltdown Scandal

Sir_Humphrey

Generali wrote: »

Perfectly true IMO.

The only way to cut public spending quickly is to make large numbers of people redundant. There is a one off payment of a few weeks or months salary and then a big reduction of ongoing payments of a salary, office space, IT support costs etc. Clearly some of the savings would be offset by increased welfare payments.

Welfare and health spending (as the biggest part of the budget) is the other obvious place to look for big cuts. A cut of a fiver a week in payments to 2,500,000 unemployed would save £650,000,000 for example. Eliminating targets in the NHS would allow for cuts to spending on non-urgent treatment and also would increase the scope for redundancies.

Big future spends should be cancelled (eg ID cards and Son of Trident) and losses cut on current projects where possible.

Pension entitlements will also have to be cut, either now or it'll be forced on a Government in the end. As you rightly point out, as pensions aren't being funded for Central Government staff the immediate saving would be nil if pension rights are cut.

A "thanks" for a reasoned argument. Unfortunately, it is entirely erroneous as to do what you suggest would involve tearing up contract law.

The Tories have already stated that existing entitlements are safe. They are telling the truth on that as unilaterally rewriting a contract (with retrospective effect) is a breach of the rule of law. The same precedent would apply to private sector workers, or indeed any form of Capitalist transaction. Not gonna happen.

Happy to see Trident and ID cards go.

Reducing benefits simply externalises costs as the resultant increase in poverty related crime would increase insurance premiums. Cuts in actual services just means people pay for the services out of their paycheck rather than thorugh taxes. Whether that is better is an ideological argument on how society spends, not on whether society spends.

Of course, we could just stabilise debt at 80% of GDP, like more successful economies such as Germany, or Britain during the 19th Century.

If debt is the number one priority, then taxes will go up. If taxes are number one priority, the debt will not be reduced. Simple as.

Generali

Harry_Powell wrote: »

The trouble with making people redundant is that often they'll choose the front-line staff who don't have many years under their belts (and hence will require a much smaller payout) rather than having the complete 'root and branch' clearout that's required.

We could make huge savings by scrapping the inefficient, work intensive and fraud riddled tax credit system, but this won't happen while Brown is in charge because it was his brainchild.

Pensions really do need sorting, but I can't see it happening any time soon because the savings are more long-term and wouldn't really benefit the incumbent party. It would also put the spot light back on the MP's own pension, pay and benefits and they wouldn't want that now would they?

Public spending is £586,000,000,000 according to the Grauniad. Let's say that needs to come down in the short term by £60,000,000,000 (as has been argued elsewhere on these boards).

Possibly the most reasonable thing to do is to ring fence defence spending on armed forces and equipment, policing and the courts and then say to the other departments, you need to cut spending by 11% next year, it's up to you how you do it but the cuts must be made.

If the money ain't there it can't be spent no matter how important the purchase.

Generali

Sir_Humphrey wrote: »

A "thanks" for a reasoned argument. Unfortunately, it is entirely erroneous as to do what you suggest would involve tearing up contract law.

Future pension payments are going to have to be cut, it's a matter of when not if. I agree it will mean breaching contracts but unfortunately what has been promised isn't possible to be paid.

The bit about getting rid of staff stands though and is the main thrust of my argument. Can Civil Servants be made redundant? (Genuine question as I know in many countries they can't).

As to the tax thing, it's hard to see where large increases in taxation can be levied. After all, the Tories cut the top rate of tax and their tax revenues increased. Presumably if rates are increased, revenues would fall.

Sir_Humphrey

As an addendum, the following is a warning against just swinging the axe.

My brother works in a private company (privately owned, no shareholders BTW).

They cut two posts last autumn due to the recession. The remaining staff including my brother were forced to work more. As a result, two further staff left the company. To retain my brother, he was granted a 6% pay raise. In the end, the cuts posts were reinstated (with new staff of course).

So they ended up paying redundancy, paying my brother 6% more, and with the exact same headcount as before. And that was last winter in the depths of the recession.

Do you think the public sector could do any better than that?

Sir_Humphrey

Generali wrote: »

Future pension payments are going to have to be cut, it's a matter of when not if. I agree it will mean breaching contracts but unfortunately what has been promised isn't possible to be paid.

You might as well say that Capitalism is doomed. I am sure you understand the crucial importance of contract law to Capitalism, and how precedent operates in English law.

Generali

Sir_Humphrey wrote: »

As an addendum, the following is a warning against just swinging the axe.

My brother works in a private company (privately owned, no shareholders BTW).

They cut two posts last autumn due to the recession. The remaining staff including my brother were forced to work more. As a result, two further staff left the company. To retain my brother, he was granted a 6% pay raise. In the end, the cuts posts were reinstated (with new staff of course).

So they ended up paying redundancy, paying my brother 6% more, and with the exact same headcount as before. And that was last winter in the depths of the recession.

Do you think the public sector could do any better than that?

That's undeniably a problem.

For example, talking to a mate at an investment bank, they've been told that to hire someone they have to outsource 2 jobs to India. Trouble is, the restriction applies if you want to replace someone that resigns and the staff know it.

Now you have a situation where the bank (which has been heavily supported by a Government) is having to give people 30-50% pay rises to stop individuals who wouldn't be able to get a job elsewhere from resigning!

The problem that the UK Government faces is that costs need to be cut fast and the only realistic way to do that is to swing the axe, probably quite crudely.

Sir_Humphrey wrote: »

You might as well say that Capitalism is doomed. I am sure you understand the crucial importance of contract law to Capitalism, and how precedent operates in English law.

It's a big problem. State pensions don't have to be paid as there is no contractual obligation. Something will need to be done about Civil Service pensions (remove the index linking I guess). Fundamentally if the money isn't there, the obligation can't be paid.

chewmylegoff

Generali wrote: »

If the money ain't there it can't be spent no matter how important the purchase.

actually, if the money ain't there, the public sector organisation just keeps on spending and goes into deficit.

Harry_Powell

Sir_Humphrey wrote: »

You might as well say that Capitalism is doomed. I am sure you understand the crucial importance of contract law to Capitalism, and how precedent operates in English law.

You can provide financial incentives to encourage staff to change their terms & conditions, you can create new contracts for new employees and you can close Final Salary schemes to new and existing members, while retaining existing pension benefits.

It's not an empasse, it just needs a strong leader and strong party who are determined to get the changes through, no matter what.

purch

Do you think the public sector could do any better than that?

They'd manage to get the story into the Daily Mail :cool:

Sir_Humphrey

Sir_Humphrey wrote: »

You might as well say that Capitalism is doomed. I am sure you understand the crucial importance of contract law to Capitalism, and how precedent operates in English law.

Sorry, I misread your original quote.

Future entitlements have already been cut, all new civil servants are on career average pensions now. Of course, that now removes the only major financial incentive for older civil servants to gain promotion, so in the longer run I expect this to increase wage stratification in the civil service (i.e. push up wages with wider gaps between grades).

But my point is this: we are arguing about cutting the current deficit, and even if I were switched to a career average tomorrow, savings (if any) will not appear for decades.

Civil Servants can be made compulsorily redundant, at a price.

It always amuses me that free marketeers think that the public sector can magically buck the employment market. LOL!

What I expect to happen is an increase in pension contributions from civil servants, as Vince Cable proposes.