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The government’s not telling even half the truth about pensions

Danny Alexander’s line on pensions is simple, clear – and wrong. It is this: public sector pensions are ’unaffordable’, out of synch with private pensions, and have to be ‘reformed’. Payments into pension schemes therefore have to be increased – for teachers, medics and local government workers their contributions could double from next April. The retirement age has to rise – from 60 to 66 by 2020, hitting particularly hard women now aged 53-55. And pensions, when finally received, have to be cut back – by changing the accrual rate from final salary to average over working life.

The result is that local government workers, faced with an average additional 3% increase in their contributions which will then yield a much reduced pensions, are likely to abandon the local government pension scheme in droves as no longer worthwhile, thus adding to the State’s welfare bill in retirement and perhaps collapsing the investment funds which this pension scheme feeds. It was fear of this that forced the Government to put up Alexander to go public on their case even while still in negotiations, throwing in concessions to the lowest paid to keep them in the scheme and to divide and rule the unions over any strike action. But the Government case is misleading for much deeper reasons too.

Public pensions are not unaffordable; it’s just that the government’s £650bn public spending allocates priorities elsewhere – corporate welfare, bank bailouts, defence expenditure (Trident: what for ?), and tax breaks for the richest. In fact, UK public sector and state pensions are among the lowest in the OECD: the average local government pension is £4,000 a year (try living on £80 a week, David Cameron).

The problem isn’t with public sector pensions, it’s rather with the spectacular failure of private ones. It’s ironic that the private sector pension funds are meant to ‘relieve’ the State of its supposed pensions burden when in reality private pensions are usually so meagre that the State has to prop them up with Income Support as a last resort to get them up to the poverty line.

If there is a pension ‘crisis’, it’s that there are too many people in poverty in their old age because of low wages, unemployment and a massive shift in income distribution away from wages towards profits over the last 50 years.


  1. MattNW5 says:

    So – the free money tree isn’t throwing off enough money. Now there’s a shock.

  2. Martin Hayes says:

    OECD documents also highlight the enormous unfunded liabilities in UK public sector pensions.

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