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Levelling down for public pensions, not for the rich

The agreement finally reached on the local government pension scheme after the government made significant concessions has rather less to do with official generosity than fear about the consequences if the scheme were so eviscerated that hundreds of thousands of local government workers might decide there was no point in continuing to contribute to it since, if they walked away, they would still get the same amount of money in retirement from means-tested income support.

That single fact gives the lie to the endless government mantra that public sector pensions are so extravagant that they are no longer affordable. The truth is that the average public sector pension for women working in local government (and most such workers are women) is just £54 a week. Would any of the critics of public pensions want to live on that each week?

Of course it is riposted, and correctly, that the average public sector worker retires on a pension nearly twice as large as the average private sector worker. But isn’t that a reason for trying to level up the private pension rather than level down the public pension, especially since the Tories are always complaining about levelling down? And why are private pensions so much lower? It’s because the Thatchder government in the mid 1980s destroyed Barbara Castle’s State Earnings-Related Pension Scheme (SERPS) and replaced it with heavily subsidised (by the taxpayer) private pensions which has turned out to be a catastrophe for millions of private sector workers. They contribute all their lives and still end up no better off than if they had never contributed at all and simply drawn income support on retirement.

Then there’s the claim just published by the Inter-generational Foundation thinktank that 78,000 public sector workers get annual pensions above the average wage, which is gross about £420 a week. But that’s only 1.95% of public pension recipients, which of course includes doctors, teachers and civil servants in senior positions.

But why have private pensions, including occupational pensions, done so poorly? One reason is that enmployers have taken contribution ‘holidays’ during which for years on end they ceased to contribute to the pension pot of their employees. Another is that private pension contributions are invested on the stockmarket and are therefore subject to the extreme v olatility of share and property prices. A third reason is that the Tory government in the 1980s pitched the original pension entitlement so low that many recipients fell below the means-tested poverty line, and even that sub-minimalist level was only achieved with the help of a substantial tax relief hand-out.

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