Positive Action Group - Possan Jantys Jarrooagh

Open, accountable government, rigorous control of public finances, and a fairer society for all.

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Home Opinion Government Finance The 2013 Budget and the "Unfair Society" - Part Two

The 2013 Budget and the "Unfair Society" - Part Two

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Further to my recent article about the government's "stealth tax" on low income families as a result of the failure to raise the personal allowance since 2010/11, I would then query the continuing catastrophe of
public sector pensions. The public sector pension scheme was revamped just over a year ago, after tortuous negotiations with the unions and their members (and at a cost of well over £1 million, paid to the consultants Hymans Robertson). Shortly afterwards, it was proclaimed by government spin as a major success story, quite forgetting that it remains "unaffordable, unsustainable, and unfair to the taxpayer" (to quote Lord Hutton's review of equivalent UK schemes). I would add that it now constitutes a desperately sad situation of "pensions apartheid" - dividing the public sector (where 90% of workers will have a final salary pension heavily subsidised by the taxpayer) against the private sector where only 25% now apparently have any form of pension scheme applicable at all.

And in the private sector, a pension is almost certainly unlikely to be a final salary scheme but more probably a defined contributions scheme with significantly lower benefits. Essentially, these are "pension pots" - the contributions saved by the individual and his employer go into the "pot" and are then paid out as an annuity on retirement - but a pension pot of £100,000 currently gains at best an annuity of £5,500 per year - meaning that a "good pension" of (say) £25,000 per year requires savings in a pension pot in excess of £450,000..... and how likely is that for the average wage earner ?

By comparison and currently, public sector employees contribute approx £20 million per year in pension contributions, but take out over £60 million in benefits - the difference of £40 million+ being courtesy of the taxpayer. Having a job in the public sector is now the equivalent of being born with the proverbial silver spoon. Broadly, many public sector worker will pay in two years salary (5% of salary per year over 40 years) in pension contributions, but then benefit to the extent of half salary (index linked, and with some very important other side benefits) after retirement - which is now expected to be the next 25 years or so - a phenomenal rate of return for a very modest investment. Those pensions are reckoned to be worth the equivalent of another 40% on top of already generous government salaries – and the bulk of those pensions is paid for by the taxpayer, 80% of whom have neither the certainty nor generosity of such a pension. Can that really be considered to be affordable, sustainable, and fair to the average taxpayer ?

At the same time, this is creating an inter-generational divide - with a growing percentage of our population going into retirement as a result of ageing, leaving our younger population effectively to pay all the (rapidly increasing) pension bills. The electorate broadly trusts government to make the right decisions for society as a whole, but on public sector pensions, I fear the trust is sadly (and badly) misplaced - it remains an area dominated by the self-interest of those in receipt of these overly generous, under-contributed, and unfair pensions - which clearly includes our elected representatives......



0 #1 RE: The 2013 Budget and the "Unfair Society" - Part TwoFrank 2013-06-15 19:52
Good article. The problem the IoM has faced is it has had to match UK pensions to attract key staff in the past.

leaving our younger population effectively to pay all the (rapidly increasing) pension bills.

Im not sure they will, as with the southern european states at present, the young will move to find a better deal

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