The difference in assessment of Monday’s pension talks between Mark Serwotka and Dave Prentis cannot be explained merely by the differing political outlooks of these two general secretaries. According to Mark the talks were “a farce”; whereas Dave Prentis said “there was a sense that today we were in real negotiations”.
The government seems to have made a substantive concession to the unions representing local government employees, whose pension arrangements are via the funded LPGS scheme; whereas no concessions seem to have been made to the unfunded schemes for teachers and civil servants.
It is important to understand the differences between the schemes. The so-called “unfunded” pensions are paid as required by the government out of general taxation rather than out of a specific dedicated pension fund, and the contributions made by teachers (6.5% of salary), NHS workers (5%/6.5% for most workers) and civil servants (3.5%) go into general government revenue. In the past these have run to provide a surplus to government, although there is currently a £3 bn annual deficit; the real cost to the state is only the interest payable on raising that amount; and over the long term periods of surplus and deficit reach a rough equilibrium. The government’s own Long Term Public Finances Report continues to reflect that these schemes are both stable and sustainable.
In contrast, the “funded” Local Government Pension Scheme (LGPS) consists of a plethora of over 100 pension funds, all paid for by employee and employer contributions. The whole scheme has asset values of £120 bn, which makes it one of the key institutional investors in the private sector. It provides retirement income for 4 million pensioners, and operates at a considerable cash flow surplus (in England alone in 2008/2009, income was £10.8 bn, paying £5.6bn in benefits). The LGPS does have insufficient assets based upon actuarial calculations, but this is the fault of employers “contribution holidays”, often politically motivated to subsidise council tax payers at the expense of local authority pensions. The suggested government reforms in the present will do nothing to address funding shortfalls in the past.
As a labour movement we have an interest in dignity and economic security for everyone in old age; and the difference between the funding mechanisms should make no difference to us. In general, the trade unions challenge the whole approach of the government.
At the most extreme the Liberal Democrats want to close all the public pension schemes to new entrants, which would push them into a protracted crisis, reducing income without decreasing liability. Many of the hare-brained schemes from the government will not even save money. Raising the retirement age might be sensible with an ageing population, but it is a gimmick unless age discrimination and inequality are seriously tackled; because if the rate of unemployment is high among the elderly then a raised retirement age simply defers the point where working age benefits are replaced by pension benefits. Reducing pension payments merely increases poverty among the elderly, exacerbating ill health, which places additional requirements for social care and expenditure on the state. Indeed wealth inequality leads to poorer health for those with the lowest pensions, so reducing public sector pensions will either lead to scandalous levels of suffering among the elderly, or increased pressure on other state welfare provision.
Because the issues are so complicated, and resistant to easy answers, then there is scope for negotiation between the unions and government, even this government. However, we should recognise that the funded LGPS does give unions representing local authority workers more leverage than the unions representing workers in the unfunded schemes.
Talk of coordinated union action over pensions may be unachievable therefore, if the government makes concessions to the unions in the local authority scheme, but not to teachers, civil servants or the NHS. On the face of it public sector pensions is an issue that should unite workers; but the detailed differences in outcome may undermine that unity. A Teaching Assistant earning about £7 per hour, working part time and being paid for just 30 weeks per year, typically only pays into the LGPS for less than seven years; whereas a male teacher on retirement may have 30 years of contributions behind him. Does anyone really expect the school support staff to strike to support teachers if the government makes concessions on the LGPS?
Our movement values unity, but actually acheiving it over the pensions dispute may be harder than we first thought.