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Home > Opinion > Kevin O'Donnell

Public sector pensions are the envy of the sector

Regardless of whether public pensions should be completely or partially reformed, they continue to serve as reminders of the high standards all other pension schemes should try to match

By Kevin O Donnell | Published May 16, 2012 | Pensions | comments

Public sector pensions are not a subject I write about very much and for very good reason – there is nothing wrong with them.

They are the envy of the pensions sector and quite rightly so. In need of reform? Yes, and perhaps not as gold-plated as some people imagine but they are also solid, dependable and rewarding – everything that a good pension plan should be. So what is the problem?

To be fair, it was no surprise they were in the news last week as the Queen’s Speech included legislative plans for a Public Service Pensions Bill which “implements controversial reforms to public sector pensions. Moves public sector pensions over to a career average scheme and extends the age at which members can draw their pensions. The government says this will make them sustainable, with costs shared between employers, workers and taxpayers ‘more fairly’”, according to the BBC.

It is not often one sees a piece of legislation targeted specifically at one group of worker’s pension schemes, in fact I cannot ever recall it although some pensions aficionados out there will no doubt recall a similar case in the past – one for the Financial Adviser Letters page, I suspect.

So why reform something that is not broken? It is a question many public sector workers asked last week as they marched through London. Indeed I do not recall ever seeing so many irate bobbies pounding the streets of London en masse before so something must be up.

Apologies for referring to the BBC again, but one public sector worker marching through London gave an eloquent answer to a journalist’s question on whether public sector pensions were too generous. She answered to the effect that public sector pensions were the standard that all workers should aspire to and damaging them and “dragging everyone down” was not the way forward.

She has a point but she is only partly right and the reason can be summed up in the word “affordability.” Can taxpayers afford to carry on subsidising public sector pensions ad infinitum? The short answer is no, they cannot.

The problem here is that public sector pensions were actually never designed to be that good and indeed they were not – it is just that virtually every other type of pension has got worse and certainly more risky, leaving public sector pensions sticking out like a sore thumb or a beacon of hope – depending on which way you look at it. In the past too, public sector employers believed that offering a decent pension – that someone, somewhere would one day have to pay for – would cover up for the fact that pay rates in the public sector were not great. However that ceased to be the case many years ago.

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