Latest Channel 4 News:
Row over Malaysian state's coins
'Four shot at abandoned mine shaft'
Rain fails to stop Moscow wildfires
Cancer blow for identical twins
Need for Afghan progress 'signs'

FactCheck: Gold-plated public sector pensions?

By Channel 4 News

Updated on 16 June 2010

Deputy Prime Minister Nick Clegg says "gold-plated" public sector pensions are "unfair" on private sector workers, but the unions call his statement "scaremongering". So who is right? Cathy Newman's FactCheck finds out.

Nick Clegg (Reuters)

The claim
“Can we really ask [private sector workers] to keep paying their taxes into unreformed gold-plated public sector pension pots? It’s not just unfair, it’s not affordable.”
Nick Clegg, Deputy Prime Minister, speech, 14 June 2010

"The Government is using breathtaking double-speak to peddle myths about public sector pension schemes - trying to pit public sector workers against those in the private sector - and it just won't work. These pension myths are scaremongering. There are no unreformed, gold-plated pension pots.”

Dave Prentis, general secretary of Unison

Over to the team for the analysis
Clegg seized on shocking figures published yesterday by the OBR – that the Treasury will spend £4bn this year topping up public sector workers’ pensions payments. In four years’ time this will have more than doubled, to £9.4bn. This is the first time the figure has been published more than a year ahead.

So why is it so high – and getting higher?

That £4bn is the difference between what’s paid into public pension schemes by state employers and by employees, and the amount being paid out in the same year. The taxpayer makes up the difference.

In theory, pension contributions now should be funding payments in future – a complex set of calculations. These numbers just look at the actual amount the Treasury will end up having to pay in the near future.

The Treasury said the expected increase was down to several things. The number of public sector employees increased around 40 years ago and more of those baby boomers are now reaching retirement age. Pensioners now also tend to be living longer – so they’re drawing on their pension for longer.

But unions say the main source of the problem lies elsewhere: staff redundancies and pay freezes. Although the size of the state increased under Labour, the tide is now turning. And because contributions are a percentage of salary, pay freezes mean the amount being paid into the scheme is on the slide.

One simple way to make pension payments affordable – at least in the short term – would be to hire a lot more public sector workers now. Then contributions into the scheme on their behalf would increase and cover the £4bn shortfall. But clearly the coalition government wants to reduce the public sector payroll, not increase it.

Regardless of whether we can afford public servants’ pensions, are they all they’re cracked up to be anyway? Unions say gold-plating is a misnomer – bronze would be more appropriate. They often give the example of local government pensions – which average just £4,000 a year; less for women. If you look beyond the town hall, the average public sector pension is only around £7,000 a year, according to the TUC.

But then, most pensions aren’t overwhelmingly generous – latest figures from the Pensions Policy Institute put the average occupational pension at worth £8,320 a year, or just £5,600 for a single pensioner.

In addition, most public sector pension schemes are final salary – where a guaranteed pension is paid out based on earnings in the year or years before retirement. Such guaranteed schemes are increasingly rare now in the private sector.

Unions say there has been considerable pension reform in recent years. For example, most state schemes have increased the age at which new entrants can draw a pension from 60 to 65 – bringing them into line with their private sector colleagues. NHS pensions, for example, changed for new entrants in 2008. And the TUC says nurses, teachers and local government employees are now paying more on average towards their pensions than they did before reforms. But the IFS described the reforms as “very modest”, saying they would only close about half the gap between the average generosity of public and private sector schemes – and that only for new workers.

The government still thinks there is some way to go.

A Cabinet Office spokesman said Nick Clegg wasn’t singling out a particular scheme yesterday, but pointing to the fact public sector pensions hadn’t felt the pain in the way private schemes had.

Cathy Newman’s verdict
The public sector may have carried out some reforms to their pensions, but it simply doesn’t compare to the pain endured by their private colleagues. Just yesterday, a report by PricewaterhouseCoopers revealed that nine out of 10 private sector businesses in the UK are set to close their final salary pensions to existing members – not just new ones.

The unions are right to point out that not all public sector pensions are worth their weight in gold. And, in the short term at least, pay freezes will increase the shortfall. But on balance, “unfair and unaffordable” isn’t double speak but plain speech.


Send this article by email

More on this story

Channel 4 News

Channel 4 is not responsible for the content of external websites.

Watch the Latest Channel 4 News

Watch Channel 4 News when you want

Latest Domestic politics news

More News blogs

View RSS feed

Cartoon coalition


How Channel 4 News viewers picture the coalition in cartoon form

Token candidate?

Labour leadership candidate Diane Abbott (credit:Getty Images)

Diane Abbott: I am the genuine move-on candidate for Labour

'Mr Ordinary'

Andy Burnham, Getty images

Andy Burnham targets Labour's 'ordinary' person.

Iraq inquiry: day by day

Tony Blair mask burnt during protest outside the Iraq inquiry. (Credit: Getty)

Keep track of Sir John Chilcot's Iraq war findings day by day.

The Freedom Files

Freedom Files

Revealed: the stories they didn't want to tell.

Making a FoI request?

Channel 4 News tells you how to unearth information.

Channel 4 © 2010. Channel 4 is not responsible for the content of external websites.