Pensions have been back in the news again recently. At the end of June several public sector unions coordinated their industrial action on a single day to emphasise their members’ disagreement with government plans to make people work longer and to contribute more into their pension.
Public sector pensions are complex. Teachers are arguing that their pension is something agreed on when they commenced their career and can’t be changed – it forms part of a deferred benefit deal. In short, they claim that they earn a bit less than the private sector would pay, in return for some job security and a pension at the end of their career. This of course is now also in contention, with many private sector workers claiming pay is comparative.
The economic slowdown over the past few years in the private sector, and the poor pension provision in the private sector makes the public sector workers look anomalous. Some in the private sector are looking on at the strikes and asking why people are not working when in the private sector they have no pension at all!
But the answer is not to reduce the quality of public sector pensions just because the private sector is not so well organised. The pressure should in fact be on ensuring that private sector firms are enabling people to save for their future – and with people living longer and expecting a longer period of retirement this is now more critical than ever. The challenges have also never been greater. ‘Jobs for life’ in the private sector seem to be something of the past, and the costs of administrating pension schemes across an ever-changing workforce are significant. Pension providers are unlikely to continue to offer free administration of stakeholder schemes when the Governments plans for auto enrolment are implemented next year. Businesses shouldn’t just factor in the additional costs of employer contributions (which will also have a minimum value set); but also a contingency for associated administration costs.
At the beginning of the 20th century, life expectancy in the UK was 40-something, a British person born today can expect to live into their eighties. If our present concept of retiring from economic activity at some point in life is to remain then pensions must provide for over twenty years of living costs.
At some point the nation has to readjust the state pension scheme because life expectancy is shooting up. The current administration is trying to do this in a relatively short period of time, but then it could be argued that successive governments have ignored an issue that could have been predicted decades ago and now they are being forced to move faster than is comfortable.
There has been a lot of pain in the public sector as reform has started. Will the private sector engage in a similar process of reform that compels people to prepare for the future? And how will the general public react to such an attempt to redefine their concept of what retirement really means?