Public Sector Pensions - A Step Forward, But The Flaws Remain......

Friday, 18 December 2009 20:52 Chris Blyth
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The latest revisions to the proposals for Public Sector Pension reform can be broadly seen as a step in the right direction, but are too timid, and fail to acknowledge fundamental flaws in both the set-up, and the long-term sustainability of the scheme. The major change from the initial Hymans Robertson proposals is the imposition of a single tier employee contribution, which (it is proposed) will increase from 1.5% of basic salary, to a 5% contribution rate - a positive step, and a move towards the  PAG proposal of a minimum 10% employee contribution rate....

 

However, the "devil is in the detail", where the latest Hymans proposals include reference to the need to monitor the viability of the scheme (which covers their professional liability as scheme architects), and for the suggested Statutory Authority to consider further contributions as necessary.  So maybe, just maybe, the Hymans Robertson proposals recognise a short-term need (and expediency !) to make proposals which will be acceptable to the public sector workforce, but are also pointing the route to the medium term need to raise contributions to more realistic contribution levels (as proposed by PAG) - let us hope so...

Meanwhile, however, fundamental flaws continue :

The proposals must be seen in the context of the "new economic reality" facing everyone as the result of the impact of the "credit crunch" of late 2008, and of the UK's enforced "re-negotiation" of the VAT Sharing Agreement with the Manx Government. This has resulted in the UK facing a ¬£180 billion budget deficit in 2009/10,  a public sector borrowing requirement of ¬£220 billion, the prospect of not returning to a fiscally responsible situation for 20 years, and on the Manx side, a major reduction in its expected VAT receipts.  The economic forecasts are (at best) for a very slow recovery over the next 5 years - only returning to the l evels of 2007/8 in 2014/5.  How can our government forecast growth rates of 7.5% at the same time ?  And what is to stop the UK government returning for a further re-negotiation of the VAT Sharing Agreement if we are seen to be successful in surviving the current financial storms ?

It is absolutely vital to the future good governance of the manx economy that when the decisions on public sector pensions are made, they should be affordable, sustainable, and in the best interests of ALL of our society.  The revisions are a step forward from the original proposals, but remain an indictment of a narrow, divisive, and inequitable process, and of a weak and indecisive government.  Our earlier critique of the Hymans Robertson report forsaw a "pensions apartheid" resulting from the proposals, with a major split in society - between those enjoying a public sector final salary pension, and the rest of society with either a much smaller, private sector pension, or more frequently, no pension at all.  The current revisions do nothing to improve that apocalyptic vision.