By Kevin Devine
Downloading PDF. Please wait... Issue 357

Hutton’s pension heist

This article is over 11 years, 4 months old
Much of the coverage of John Hutton's proposals for what amounts to a major attack on public sector pensions concentrates (rightly) on the planned changes and their likely impact on workers. But little light has been shed on what Hutton and the government are trying to achieve.
Issue 357

This is an important omission, because the proposed changes, especially the plans for increased employee contributions, represent an attempt to shift much of the cost of providing pensions from the Exchequer to public sector workers.

Reducing the costs of public sector pensions will reduce the government’s deficit, which of course wasn’t caused by public sector employees, or any other workers, but by the government’s bailout of the banks and its failure to collect billions in unpaid taxes from corporations and the super-rich. This is why some trade union leaders, including Unison’s Dave Prentis, have referred to the plans as a pensions “raid”.

Most of the media has bought the myth that these pensions are somehow “unsustainable”. But the “reforms” already enacted under Labour will reduce the cost of the so-called “unfunded” schemes (the ones for the NHS, teachers and civil servants) from 1.9 to 1.5 percent of GDP by 2060. And the recent switch by the current government from the RPI measure of inflation to the much lower CPI for uprating pension benefits could reduce the cost of pensions by as much as 20 percent over the same period.

If contributions rise, many employees will decide that on top of a two-year pay freeze, and with inflation running at record levels, they can’t afford to contribute to their pensions, and will opt out. The concern here is that this could lead to the collapse of hitherto healthy pension schemes. For example, the NHS scheme is in surplus and so is the local government pension scheme (in cash terms). But a quarter of those eligible to join the latter have decided not to. Most of these are low-paid workers, mainly women. And figures from the largest local government scheme, for Greater Manchester, show a 56 percent increase in opt-outs over the last year. This is likely to have been caused by the pay freeze, and a rise in contributions can only make matters worse.

The changes are also about reducing the costs associated with privatisation. Hutton plans to exclude private sector employers from the local government scheme, despite the fact that some 25 percent of employers in this scheme are private sector firms delivering public services. At the same time, a review is taking place of the “Fair Deal” provisions, whereby private sector companies were expected to offer “broadly comparable” pensions when tendering for public contracts. Barring access to the local government pension scheme and ending the “Fair Deal” will worsen pension provision for the rising number of employees working in contracted-out services.

The threat of industrial action has put the government on the back foot, and it has said it will row back from making any immediate changes in the March budget. But the talks taking place with the TUC are mainly an exercise in stringing the unions along, and it looks as if even TUC leader Brendan Barber is losing patience. The pensions issue is one that has the potential to unite all public sector workers against the government’s plans. All the trade unions have to do is rise to the challenge and add action to words.

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