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Union spin on pension reform ignores big picture

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  • Union spin on pension reform ignores big picture

Contrary to what UK unions might believe, the state of public sector pensions is a generational issue, not a class issue, argues Spence & Partners' David Davison.

UK trade union Unite has published a 'Dossier of hypocrisy' that rightly highlights a disconnect between the government's desire to reduce the level of public sector pensions and the rather generous pensions payable to the very cabinet ministers proposing the change. Few would disagree that MPs' benefits are excessive, or that failure to make any pre-emptive moves to reduce their value undermines the strength of the arguments the government is putting forward to address the long-term issue over public sector pensions.  

The document points out how "Unite supports good pensions for all workers including MPs - what we don't support is a cabinet of millionaires attacking the very modest pensions of the men and women who care for our sick, teach our children and keep our streets safe".

This statement raises some interesting points. Is it purely the fact that the proposals are being made by "millionaires" that make them unsupportable? I somehow doubt that all the cabinet ministers mentioned would fit in to this category. It also ignores the crucial point that the steps being taken to make public sector pensions sustainable are based squarely on independent proposals made by the former Labour pensions minister John Hutton.

Hutton's proposals sought to put in place a sustainable framework to protect the value of pensions for a very significant proportion of the people highlighted as being at risk. While I agree there should be a significant reduction in the pensions offered to MPs, the impact of even a significant reduction on 600 people will not have the same financial impact as a more modest reduction for hundreds of thousands of public sector workers across the nation.

Another problem is the term 'gold-plated' when used to refer to pensions. The focus here seems to be based on the amount payable rather than on the fact that, no matter what the state of the scheme or the wider financial environment, the pension will be paid in full, or the implicit funding risk this entails.

It would be interesting if the same people were asked if they considered a pension fund to the value of £150,000-200,000, with two-thirds of this provided by the state, was considered excessive in comparison to those provided in the private sector. This is, by the way, the equivalent fund value required to produce a £6,000 pension, index linked with spouses protection in a private scheme. The surveyor may have received a slightly different answer.  

The government has already yielded significant ground on this issue, possibly too much ground. If we see little or no change on public sector pensions, where does this leave us? The government was seeking something sustainable for the future, but a continual watering down of the proposals just means we're likely to be back in the same place in a few years, shoring up huge problems that will be left to future generations to sort out. Ultimately, the money has to be found from somewhere - it will mean further reductions in education, police, health budgets or higher taxes. How many public sector workers will be happy if they keep their pension, but lose their job?

The Unison document suggests the government must "stop trying to turn people against their neighbours". But isn't that the very thing they are doing through their stance on pension reform? Failure to compromise on this issue risks further alienation and disconnection between the public sector and their private sector counterparts, many of whom can only dream of having such generous pension provision.

For the unions to deny that change is necessary to create sustainable pensions for the future seems totally divorced from the environment we are faced with. This is a generational issue, not a class issue. It's about how much we're prepared to mortgage our children's future to maintain current levels of pension benefits.

I look at my young sons and their friends, and I feel immensely sad the leaders of the trade union movement and successive governments have failed to get to grips with the unsustainable cost of pension provision. Continued failure to address this issue will saddle future generations with a legacy of debt. While I would hope that reason may prevail and we will avoid this situation, unfortunately, I'm not hopeful.

David Davison is head of the public sector, charity and not-for-profit practice at Spence & Partners

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