For yet another winter, Britain faces the prospect of only a partially operating health service at the most critical time of year. The issue – as usual – is pay. But might pensions hold the answer to getting the public sector back to work?
Anyone who has taken a train, had a missed bin collection, studied for a degree, got children in school, or tried to do dozens of other routine parts of life will be all too aware that the last couple of years have been, to put it mildly, dysfunctional.
In the 12 months to May 2023 3.9 million working days were lost to strikes, according to think-tank the Resolution Foundation. That compares to an average of 450,000 during the 2010s, taking industrial action back to levels not seen since the 1980s.
It should be noted today’s strikes, bad as they are, are nothing on those of the 1960s and 1970s. The number of days lost then, were in some years eight times more than today.
But the situation is still dire. Pay disputes are the main grievance, accounting for 75 per cent of lost days between 1998 and 2018, according to the Office for National Statistics.
Real-terms pay cuts since the austerity years post-2010 were already bad, but two years of uncontrolled inflation have turned a cut into an open sore. It’s no wonder we are where we are.
But for a real, lasting agreement is it finally time to give up gold-plated pensions, which remain hugely unappreciated by workers, and give a big, one-off pay rise?
Let’s be clear. If I was a public sector worker, I would fight tooth and nail to preserve my pension. But that is only because, after many years writing about pensions, I understand just how valuable they are.
Despite my eloquent explanations and engaging metaphors, my friends and family in the public sector simply do not grasp the enormous generosity of their pensions. And perhaps that is fair enough. After all, they see the chunky wages and plush offices enjoyed by many in the private sector and, quite reasonably, think a bit more jam would be handy today rather than in 40 years.
Neil Record, a former Bank of England economist and now chairman of free market lobby group the Institute of Economic
Affairs, has calculated that for a teacher on £35,000 a year, the Treasury collects £11,600 – made up of contributions from the teacher and their employer.
Better, says Record, to give a 33 per cent pay rise to the teacher and let them make their own pension provision. He thinks public sector workers should be given defined contribution pensions, as in the private sector.
John Ralfe, a consultant who made his name shrewdly overturning the investments of the Boots pension scheme, also thinks pay should be boosted at the expense of pensions. But, unlike Mr Record, he doesn’t think doctors and teachers should be stripped of their defined benefit plans.
Writing for the Telegraph last year, he said all public sector workers should be given the choice of “higher pay today, in exchange for a lower DB pension in retirement”.
He suggests a voluntary system so workers could decide against a pay rise if they want to retain the full generosity of their pensions. The Local Government Pension Scheme already allows staff to choose a “half DB pension”, he notes, which lowers the member contribution – but crucially does not boost pay.
In an ideal world, pay rises wouldn’t have to be funded by pension cuts but the public finances are clearly not in a fit state to deliver both. In any case, the gulf between private and public pensions is becoming more ridiculous with every passing year. The fact that so
few public sector workers seem to realise just how good their retirement benefits are is intensely irritating.
A big stumbling block towards a plan to water down pensions to boost pay would, of course, be the unions. They certainly do know how good their members have it, and will well remember battles to protect and enhance pensions down the years.
The way around that, as Ralfe suggests, is to put a simple offer to public servants that is instantly understandable and bypass the union reps. Would this plan just start the clock ticking on a second retirement timebomb (the first being already quietly sitting under the private sector)? It certainly won’t help, but it’s time we put an end to endless strikes – and redressed the huge and unappreciated imbalance in our pension system.