I have the highest respect for public sector workers especially as my mother was one for all of her working life (almost forty years as a radiographer in the NHS) and my brother works in the public sector, again in the NHS at the QMC.
I would also like to explain that I am a former shop steward of the National Union of Journalists and accordingly I recognise and appreciate the valuable role Trade Unions should play in representing their members and their interests.
I fully appreciate that many public sector workers are being asked to contribute more to their pension scheme and this seems hard given better paid public sector workers have had their pay frozen for two years and everyone has been affected by rises in the cost of living in these difficult times. However, it is also important to note that the latest offer from the Government means a better pension deal for public sector workers earning under £15,000 (who will not pay extra contributions) and anyone earning less than £21,000 will have their contribution increases capped at 1.5 per cent over three years.
The Governments reforms will ensure public sector workers can expect a far better pension deal than most workers in the private sector. For example, under the Government’s proposed scheme, a primary school teacher earning £32,000 per year could expect to receive a pension worth £20,000 per year. In order to get an equivalent pension in the private sector you would have to have invested 38 per cent of your salary each year.
Long before the economic situation became so profoundly difficult it was agreed by all political parties that changes had to be made to public sector pensions. Those changes have to be made primarily because we are all living longer. To make sure people have a pension for all those extra years they will have to contribute more and the schemes need reforming to make them sustainable and fairer. This is why the Government set up an inquiry into public sector pay chaired by a former Labour Minister, John Hutton. His inquiry concluded urgent reform along these lines was needed, building on the changes already made by the last Government.
It would be irresponsible to ignore the cost of public sector pensions to the tax payer. As you know there is no such thing as “government money” – we all pay taxes and that public money goes to the Government who spends it on our behalf.
Public sector pension schemes cost £32 billion a year an increase of a third in the last ten years. In 2008-09 of the £19.3 billion paid into four of the biggest schemes (but not including the local government scheme) £14.9 billion came from the tax payer – members’ contributions were by far the smallest source.
The Local Government Pension Scheme now costs council taxpayers £6 billion a year – up from £1.5 billion in 1997. Pensions for workers in local Government, whether it is at Broxtowe Borough Council, the City or Notts County Council are costing on average over £300 a year to every household paying council tax in Broxtowe. This is equivalent to a quarter of every council tax bill going to local government pension costs. The Audit Commission, as you may know, has previously stated that the LGPS could not be continued in its current state and their report can be read using this link:
It is agreed by all political parties that we are in some of the most difficult economic times within living memory, though we differ as to why and the policies needed to restore our economy. But it is not disputed that Britain has the largest deficit of any of the G20 countries and like almost every country in the world growth has declined as the advanced countries teeter on the edge of another recession. What that means is that as a country we are spending considerably more than we are bringing in. As you will know from the way you operate your family budget, if you spend more than you earn you have to borrow the difference; but you can’t keep on borrowing and when you reach the limit of your credit card or overdraft the only way forward is to pay off your debts and cut your expenditure to match your income. That is essentially the situation Britain is in and reflects the policy of the Government – balancing our books and getting us back on a responsible financial footing.
You will be familiar with the comparisons made between the public sector pension schemes and private sector schemes, where only 43 per cent of employees are in their employers’ pension scheme compared to 90 per cent of public sector workers. Only 15 per cent of private sector workers are in final salary schemes compared to the overwhelming majority of public sector workers. People working in the private sector long ago accepted the need for reform of their pension schemes which saw the end of final salary provisions and bigger contributions (or having to join an extra pension scheme) from workers. The driving force of those reforms was the fact that we all live longer and that is the driver of the Government’s reforms to public pension schemes, though at the same time we have to reduce the burden on tax payers.
Teachers I have met with have made the point that their pension scheme was apparently found to be sustainable in 2007 although Lord Hutton formed a different view when he reported earlier this year. I have raised this with the Secretary of State for Education, Michael Gove. I think it is important to note that the Department of Education is proposing to extend the £21,000 cap to 26,000 meaning 117,000 teachers in the early stages of their career would pay an increase of no more than 0.6 percentage points.
The idea that public sector workers are being “taxed” in some way to pay down the deficit is simply not true. Everyone in a pension scheme has to make a bigger contribution because we are all living longer; however, lower paid public sector workers will not have to pay any extra, which I think is right and is fair.
For many months now your union representatives have been in negotiation with Government ministers as to how we can make the changes we need to make to public sector pensions. At the beginning of November the Government made an improved offer which I believe is fair and reasonable and which I believe should be accepted by all public sector workers. As a result:
1. Public sector pensions will remain among the very best available – a guaranteed level and inflation proofed.
2. Most will see no reduction in the pension income they receive at retirement and many low and middle income earners will in fact receive a larger pension income at retirement.
3. Low earners making under £15,000 a year (FTE) – that’s 15 per cent of the workforce – will not have to make increased contribution. Another million workers earning up to £21,000 will have their total increase limited to 1.5 per cent over three years.
4. The pension pot people have built up so far will be protected: a guaranteed benefit in retirement free from market fluctuations or fees – something all but eliminated in the private sector.
5. No one within ten years of retirement will see any change – either in the age they retire or in the amount of pension they will receive on retirement.
6. The Government has improved its original offer and will put in an extra 8 per cent which means pensions will grow faster. The rate at which annual benefits are earned has been improved from the 1/65ths offered in October to 1/60ths now.
Given we are still in a period of negotiation, the Government’s generous offer, and arguably most importantly, the real harm it will cause to ordinary people, I very much hope you will not be joining Wednesday’s strike action.
I have to say I think too many union leaders are seeing this as a purely political act against the Government. Given that in many Unions half the members didn’t vote in the ballot (and in some unions it was an even lower turnout), the result is that only a third of union members voted for strike action. Wednesday’s day of action will hit ordinary people and their families which I believe is unfair and achieves nothing for public sector workers.
I have attached the latest document from the Treasury which sets out in detail the reasoning for reform and provides details of the Government’s revised offer to the various Trade Unions we are still in negotiation with.
As part of the process, the Government has launched various consultations. I hope NHS workers, teachers and civil servants took part in those consultations before they closed some time ago.
I am encouraging constituents who belong to the Local Government scheme to make their views known before the closing date of 6th January 2012 via the Department for Communities and Local Government website:
Members of the Firefighters’ Pension Scheme and the new scheme have until Friday to make their views known on the proposed changes to their pensions on:
With best wishes,