Public sector pensions and pay far better than private sector - Ros Altmann

    Ros is a leading authority on later life issues, including pensions,
    social care and retirement policy. Numerous major awards have recognised
    her work to demystify finance and make pensions work better for people.
    She was the UK Pensions Minister from 2015 – 16 and is a member
    of the House of Lords where she sits as Baroness Altmann of Tottenham.

  • Ros Altmann

    Ros Altmann

    Public sector pensions and pay far better than private sector

    Public sector pensions and pay far better than private sector

    Public sector pensions and pay far better than private sector

    by Dr. Ros Altmann

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    Public Sector Pensions and Pay – time for a properly informed debate?

    Since 1997, there has been a dramatic improvement in the fortunes of public sector employees. Without fanfare, they have achieved massive pay increases and retained hugely valuable pensions, while private sector pensions have been decimated. Hidden away for future generations is the time bomb of pension payments that will have to be met for workers who are earning more than most today and will then receive much more than their peers after they retire too. It is not the fault of the unions that they are demanding better pay and conditions for their workers. That is their job. But it is surely the job of Government to behave responsibly when negotiating with our money. Having allowed such significant disparities in pay and pensions to persist and storing up liabilities for future taxpayers, it is essential that there is proper transparency, so we can all make informed decisions about spending priorities.

    The figures on pay:
    Average public sector full-time pay is now just under £500 a week. Average private sector full-time workers earn just under £440 a week. (Source: National Statistics). It is in recent years that pay in the public sector has overtaken that of the private sector.

    The figures on pensions:
    The value of a public sector pension is significant. Actuarial calculations suggest that Government-guaranteed, fully inflation-linked pensions, which can be paid from age 60 or even earlier, are worth well over 30% of each worker’s salary, each week. That means an average public sector earner on £500 a week is also being ‘paid’ another £150 every week in the form of pension accrual. So the real value of an average full-time public sector worker’s pay is now at least £650 per week. Most public sector workers probably have no idea how valuable their pension is and, certainly, the latest public sector pay demands take no account of this.

    In contrast, an average private sector worker on £440 a week, with no private pension, therefore effectively earns £210 less each week than the public employee, when total pay (i.e. today’s pay and the deferred pay element of promised pensions) is considered.

    Even allowing for average defined contribution pension contributions of around 6.8% of salary, this amounts to only £30pw which would boost private workers average pay to £470 a week. This is still £180 less each week in pay and pensions than public sector workers.

    Public sector pay and pensions – some realities

    Public Sector Private Sector
    Median gross weekly pay (full-time workers) £500 £440
    % actively belonging to final salary scheme >90% <25%
    Value of average pension accrual (% of salary) >30% <7%
    Value of pension accrual (£pw) £150 £30
    Total pay – earnings plus pension contribution £650 £470

    Public sector pensions are not being properly funded, no money is being put aside for them. Latest estimates suggest the future bill will exceed £1 trillion. There is no transparency on this issue, which is storing up debts for future taxpayers which are not allowing properly informed debate. None of the costs of public sector pensions are included in the Chancellor’s ‘fiscal rules’ – they are hidden away as if they do not exist. But public sector workers, nearly one-fifth of the entire labour force, are being paid more today and will also be paid better pensions in future.

    Since 1997, the public sector workforce has expanded significantly and public sector pay has outstripped private sector pay. It used to be that the very generous public sector pensions were justified because public sector workers earned less than their private sector counterparts. That is no longer the case. Official statistics show that average public sector workers earn more than private sector workers.

    On top of this, the value of their future pension promises adds another 30% or more to their pay packets in reality. In 2007, median gross weekly pay of public sector workers was just under £500 a week, while median private sector pay was just under £440 a week! (Source: National Statistics)

    If you factor in an extra 30% for the value of the public sector final salary pension – guaranteed by the taxpayer – the public sector worker actually earns £650 a week.

    But the £150 a week worth of pension contribution is not set aside today, it is money that future taxpayers will have to pay in decades to come to the millions of public sector workers who will by then be retired.

    However, public sector workers themselves do not seem to realise the value of the pensions they will receive. Do public sector workers on £25,000 a year really realise that they are earning another £150 a week in pension contributions?

    It is not the fault of the unions that they are demanding better pay and conditions for their workers. That is their job. But it is also the job of Government to behave responsibly with our money. At the very least, the public should be told the truth about the future build up of liabilities. Hiding public sector pension costs off balance sheet does not fit with transparent and open Government.

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