A question answered which is increasingly being noticed, seeing as it is the tax payer that is answering it more frequently than ever before. The cost of pensions for public sector workers currently sits outsite the fiscal rules set out by Gordon Brown, both as chancellor and prime minister.
Average public sector full-time weekly pay is now just under £500 compared with £440 a week for the private sector (Source: National Statistics).
In addition to better pay, actuarial calculations show that the public sector government-guaranteed, fully inflation-linked pensions, paid from age 60 or even earlier, are worth at least 30% of each worker's salary, each week. That means a median public sector earner on £500 a week also earns another £150 every week in the form of pension accrual (deferred pay), making a total average full-time public sector worker's pay at least £650 per week.
In contrast, an average private sector worker on £440 a week, with no private pension, effectively earns £210 less each week than the public employee, when today's pay plus deferred pay in promised pensions is considered.
Even assuming an average employer contribution to a private pension of around 6.8% of salary only adds £30pw which would boost private workers average pay to £470 a week. This is still £180 less each week in pay and pensions than public sector workers. This reality does not seem to be factored into the latest public sector threatened pay strikes.
Contracting out in an unfunded scheme is a makes no sense: However, for public sector workers in unfunded public sector pension schemes, this contracting out is a nonsense. In an unfunded scheme, there is no fund building up to pay the workers' S2P in future. All the money will still have to be found by future taxpayers!
In effect, public sector workers in unfunded public sector pension schemes (such as civil service, NHS, teachers etc) are not paying anything for their state second pension. They will get it for free. Furthermore, they start receiving pensions at age 60 as part of the public sector pension scheme, whereas state pension age will rise to 68 in the future.
So contracting out amounts to a hidden pay boost for public workers and hidden subsidy for public sector employers today, which will have to be made up by taxpayers in future.
Hidden costs: None of the costs of public sector pensions are included in the Chancellor's 'fiscal rules' - they are hidden away as if they do not exist. But there are nearly 6 million public sector workers altogether - one-fifth of the entire labour force, who are being paid more today and will also be paid better pensions in future.
It is not the fault of the public sector unions that they are demanding better pay and conditions for their workers. That is their job. But it is surely the job of Government to behave responsibly with our money. At the very least, the public should be told the truth about the future build up of liabilities.
Private sector pension provision has collapsed, as final salary schemes have closed and employer contributions are cut, but public sector schemes remain unaffected. Hiding the true costs off balance sheet does not fit with transparent and open Government. It is time for proper openness about all aspects of public sector pensions. An independent inquiry into the costs, both now and into the future, is long overdue.
It isn't quite as glamorous as Northern Rock failing, or Lehman, but oddly enough it is costing hundreds of billions more. A fiscal drag on the entire nation. £3.5 billion per year for all public workers in comparison to private workers in fact.
I'm sure the above will be in the Daily Mail tomorrow....thanks Ros
The future of the public service pension is bankrupt. Don't be surprised if this is nailed on to the back of the current fiscal crisis.
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