Do you have a final salary pension?
Well you must be in a public sector job then.
The pensions apartheid continues to grow as the gap between public and private sector continues apace and the sums are frankly astonishing. As reported in the Telegraph:
"If a 25-year-old worker joined a defined contribution scheme — the kind used by most workers in the private sector — this year and paid in 2.7 per cent of a lifetime average salary of £50,000 a year, while their employer paid in 6.5 per cent, they would receive an annual pension of £16,023 from the age of 65.
"A 25 year-old on the same pay joining a final salary scheme — most typically found in the public sector — could expect to receive £57,714"
That's over £41k a year more.
Now I am not going to fall into the trap of saying public sector workers aren't tax payers but there are some things to consider-
1) Final salary schemes, good benefits etc were originally there to supplement rather poor wages in the public sector. However, this is no longer the case. In fact as recession bites, public sector pay is outstripping private pay for the first time. The Pensions Policy Institute puts average public sector salaries at £25,600 and those in the private sector at £25,300,
Between 1997 and 2006 we saw a 13% increase in public sector pay alone representing 12.4% of national income.
2) With one-in-five in public sector pay, this represents an annual bill of £16bn a year according to the PPI and £45bn a year according to the Policy Exchange - the MOD is given £35m a year to run the army!
Why an annual bill? Well one of the problems with the public sector pension schemes is that most are unfunded - that is the government, me and you pay the bill. Which leads us to the really scary figure
3) Public liability
In 2005 the liability stood at £600bn rising to £725bn in 2006.
Even on the Government’s own figures, in 2005-6, the interest paid on the unfunded liabilities
exceeded the interest paid on the National Debt for the first time.
According to the Policy Exchange, using the Government’s own calculations, the accumulated liability of unfunded public sector pensions schemes is estimated to be greater than the national debt. If proper financial methods are applied, the true figure is vast - £1.1 trillion, or equivalent to 78% of GDP.
These are truly frightening figures.
So as the private sector final salary pension goes to the wall, public sector pensions carry on going in their merry unfunded way.
I mean why should 76% of public sector workers get a gold plated pension compared with 17% - and shrinking - of private sector workers?
At least there was a funding requirement for most of the private sector pension schemes.
If companies that earnt the country billions of pounds of income cannot cope with the pressure of final salary schemes why can a sector, which by its nature spends the country's capital rather than generates, think it can carry on with high wages and high pensions?
That is where the pension apartheid comes from and for the sake of our wallets, this will have to be addressed.
One final word: What do you call a pension scheme with a few planes?British Airways
Must be a meme going on- John Redwood is examining the death of private sector final salary schemes