TUC: Public service pensions affordable and sustainable

TUC evidence to Lord Hutton’s pensions review published today says that public service pensions are both affordable and sustainable.

Recent changes negotiated by unions to raise pension ages and ‘cap and share’ the costs of increasing longevity, taken together with the Budget imposition of consumer price index (CPI) rather than retail price index (RPI), indexing on pensions in payment and deferred pension revaluation, have already significantly reduced the cost of future pension provision, says the submission.

The TUC says that there is therefore no need for further immediate changes, and that introducing higher member contributions at a time when most public sector pay has been frozen would result in an unfair reduction in take-home pay due to inflation.

TUC general secretary Brendan Barber said: “There has been a sustained and highly political attack on public sector pensions from right wing groups who know they cannot win popular support for their real agenda of slashing public services such as health and education.

“Yet for all their ingenuity in inventing big scary numbers that seem to show that paying modest pensions for the nation’s nurses, teachers and other public servants will drive the country into imminent penury, the truth is that their pensions are perfectly affordable, are not out of control and can adjust when issues such as increased longevity require it.

“Of course it is unfair that two out of three private sector workers now get no employer support for building up a pension, despite continuing diamond-encrusted pensions in Britain’s top boardrooms, but the solution is to make private sector pensions better. Cutting the modest pensions of school meals assistants will do nothing to improve the pensions of private sector catering staff.”

The submission welcomes Lord Hutton’s intention to set out a proper basis for assessing the costs of public service pensions as an antidote to the ‘big scary numbers’ used by the political opponents of public services to stir up hostility to public service pensions.

“While public sector pension schemes produce detailed reports, the submission calls for an annual Treasury publication reporting on all pay-as-you-go public-service pensions to ensure information is clearly available in an easily accessible way to help refute the exaggerated claims made by the critics.

The TUC says that the opponents of unfunded public sector pensions generate their numbers for the future cost of pensions by rejecting the way that the Treasury uses to measure the costs of future commitments in today’s money.

This uses a special interest rate called the social time preference discount rate which is set at 3.5 per cent. The TUC says that this is perfectly justifiable in economic theory and standard in other countries. As it is used across government to assess future projects – and not just for pensions – changing it would have wide effects on government plans and significantly deter all public sector investment.

The TUC says that as the Government does not invest money to pay for future pensions, the National Audit Office (NAO) is right to have dismissed arguments about the discount rate in favour of assessments of what proportion of the nation’s wealth future pensions payments will require.

Even before the significant switch to CPI, indexing the NAO and the Office for Budget Responsibility have endorsed Treasury estimates that public sector pension commitments remain stable as a proportion of GDP for the next 40 years.

Read more on public sector reward