Give to the Needy

I wrote this piece on public sector pensions years ago for one the major Scottish newspapers - The Herald, if I remember correctly.

Yet all these years later the trade unions, or some of them at least, are still banging on about final salary pension schemes - calling strikes and so on - instead of accepting the principle that average salary salad pension schemes are much fairer as far as the public purse is concerned.

Because average salary pensions don't include a big subsidy to senior officials in local councils, in the NHS and the BBC - for example - many of whom have done so well in recent years from hugely generous severance and early retirement schemes.      

Public money down the drain, if you ask me - wasted on the highest paid groups in the public sector when these funds could have been used to end the scandal of low pay.

Cleaner who pays for the boss’s pension!

 In the good old bad old days, trade unions were synonymous with overblown, unrealistic pay demands. The only saving grace was an underlying belief that they were at least sincere in their efforts to make the world a better, fairer place.   

Nowadays, the union strategy is not so clear; take the threat of widespread public sector strikes over pensions. A key union demand is that public servants retain their ‘final salary’ pension schemes which calculate benefits on an individual’s final year’s earnings before retirement, as opposed to what they actually pay into the scheme throughout their working careers

Now a final salary scheme sounds a good idea, but as all the money comes out of the same pot, the practical effect is that some people (i.e. those with a career structure) get a much better deal than others. A well-paid chef executive might have paid pay pension contributions for up to forty years, but contributed higher payments (as a chief executive) for only four of those years – a mere 10% of the total!

Nonetheless, a final salary schemes means that a chief executive’s pension (of up to half annual pay) will be based on their last year’s earnings, and takes no account of what they were actually earning as they worked their way up the greasy management pole. In other words, while local government workers or civil servants all belong to the same pension scheme, the rules of a final salary scheme mean that some members are more equal than others.    

Essentially, a final salary scheme operates as an unfair tax on low paid, part-time (mainly women) workers, the majority of whom are on relatively fixed salaries throughout their working lives, with no opportunity to climb up incremental pay scales or into better paid jobs. The rules, by the way, were written 50 years ago, so it’s little wonder they are no longer fit for purpose in the 21^st century.

In practice, the current system means that a part-time cleaner earning £5,000 a year is subsidising the pension package of a chief executive retiring on £150,000 since the chief executive’s lower earning years (the vast majority of the total) are effectively being ignored. So, the present scheme is self-evidently regressive, discriminatory and against the interests of the lower paid. 

The Pensions Agency, egged by the employers admittedly, is now proposing a long overdue change which would mean that, in future, public sector pensions are based on what people actually pay into the pension scheme throughout their working lives.

In future, what you pay in by way of contributions (topped up by employers) is what you will get back – with no hidden subsidies from less well off co-workers, or the taxpayer for that matter. Nothing to get worked up about really, but the all too predictable trade union response has been a mixture of tantrums and threats, culminating in a national day of strike action, which has been called by various public sector unions including Amicus, GMB, T&G, Unison and PCS. With perfect timing the teachers’ unions, EIS and SSTA, are threatening to join the party - a week before Scotland’s school pupils face their standard grade exams!

People often make the mistake of believing that trade unions are about bold, radical or even socialist policies – when in fact they are more concerned with propping up and preserving the status quo. So, when trade unions resort to angry denunciations and strikes, it’s essential to read between the lines to find out exactly what’s going on.

Union members are up in arms, their leaders say, and will do whatever is required to protect their hard won pension rights. Up to and including defending practices that discriminate against the low paid, so it seems!

Union leaders point to recent ballots, which, they say, provide an overwhelming mandate for industrial action. If such claims are to be believed, anywhere between 73 – 87% of union members (in separate ballots) voted to support industrial action and resist change to their pension schemes.

Yet, in truth these strikes do not command popular support. Typically, less than 20% of members take part and when you strip out the numbers voting against industrial action, what’s left often is a rump of only 10 - 12% of members positively supporting a strike. Low paid part-time workers would benefit from reforming the present final salary schemes, but as that’s not explained properly the union tail ends up wagging the dog.          

In the run up to a general election, a Labour government may wish to avoid a full scale confrontation and if recent reports are true, the reform agenda will be kicked into the long grass for a year or so to find a longer-term solution.  

Now the pensions crisis is real and worrying, but it’s also very complex. There are many anomalies in the present salary system with some groups being better treated than others, though for purely historical reasons. There are big intractable issues for employers, employees, trade unions and the government to tackle – an ageing population, the cost of to the economy, and the differing benefits of public sector schemes and those operating in the private and voluntary sectors.

But on the issue of a final salary scheme, the unions should take a leaf out of Gordon Brown’s book. At least the Iron Chancellor knows a thing or two about targeting benefits and resources on those most in need.

Mark Irvine – April 2005