Killing off the golden goose
Last week’s mass teacher strike over pensions has reminded me that pensions are no longer a boring subject mostly discussed by the over-65s over a G&T, they have become part of the national debate about our economic future.
They have moved on to the front page and I suspect will stay there for some time. At stake is the future of the gold-plated public sector pension scheme, a cherished part of the UK’s massive but shrinking public sector.
Regardless of the merits of who pays for these schemes, most financial advisers who have looked at them will probably agree that they provide enviable benefits all the way from low employee contributions to generous accrual of benefits plus lots of tasty extras such as early retirement and so on. Almost worth being a teacher for 40 years just to get the pension, you might say - or perhaps not if you have ever been one.
Advisory and investment firm Hargreaves Lansdown has done some very interesting comparisons on public against private sector pensions. Its view, in a nutshell, is that public sector pensions are rather good but that unions have to face up to the fact that they are increasingly unaffordable. It agrees with the unions, however, that there should be “no race to the bottom” and also believes that private sector employers have to pull their socks up when it comes to pension contributions. I am sure many financial advisers will go along with those views.
The question for me is how we got into this mess, particularly with respect to the teachers, so many of whom went on strike for the first time last week, not something many would do lightly I suspect, despite the headlines you may have read.
Not so many years ago, teacher pay was laughably poor. Teacher pay had declined compared to other public sector workers and the private sector. Teachers were demoralised and many left the profession. Interestingly quite a few became IFAs. Labour then made education a priority and decided that if we were to fill the huge number of teaching vacancies and attract the brightest and the best into education we had to improve teacher pay and teacher benefits. That included the pension.
Because teacher pay and benefits have soared so too, naturally, has the cost of paying them a pension when they retire.
When it comes to public sector pensions it is easy to dismiss them as over-generous, and some undoubtedly are, but looking across other public sector workers I have great sympathy with some relatively low-paid public sector workers such as the armed forces. Many soldiers still only earn a wage that would put them on a par with a supermarket shelf-stacker.
There is not much comparison between the risks involved in stacking tins of beans and fighting the Taliban so my money’s on the armed forces. Yes, their pension is generous, at least in terms of employer contributions, but then there is a pretty fair chance they will never get to claim it and that risk has to be borne in mind when it comes to assessing their pension.