Socialist Worker

How your pension could be hit

Issue No. 2307

Supporters of the deal claim that career average pensions can be better. But the only way to make that claim is to be very pessimistic about pay.

When Unison was trying to build support for strikes, the pensions calculator it published assumed future pay rises of 2 percent above RPI inflation—that would mean 5.5 percent. But the unions’ and employers’ official examples of how workers would fare under the new scheme all stop at 4 percent.

This graph shows why. If someone keeps more or less the same wage throughout their career then they might do better with a career average. But as annual pay rises go up, a final salary scheme becomes far better.

There is a pay freeze today, but decades of such low pay rises would be historically unprecedented. Even if the pay freeze goes on for a while, workers would still likely be getting incremental rises—and few stay in the same job for decades.

The vast majority of workers will be on a higher wage at the end of their career than they were at the start of it. That means a pension based on final salary will be much better for them.

As the unions try to move on from the pensions fight, they are already starting to beat the drum over pay. So surely the pay figures used to calculate the pensions deal should not assume that we have already lost that battle.

The graph shows the pension of a worker starting in the new scheme in 2014, currently earning £20,000 a year. They are 40 years old now and would retire at 67. For revaluation we have used the official examples’ assumption of 2.5 percent inflation.

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Background Check
Tue 12 Jun 2012, 19:45 BST
Issue No. 2307
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