Government’s proposals on public sector pensions leaves the unions in a tricky position

The biggest general strike in generations was thrown into doubt yesterday after the government offered up the Trade Unions an improved deal on public sector pensions. The unions, who have been threatening a mass walkout for months in light of the government’s original proposals, sought to make it clear last night that as things currently stand the strike will go ahead. However, union leaders were speaking in markedly less militant tones about the government yesterday which suggests there may yet be a compromise to be had which would see the strikes called off.  

The changes that the government have proposed are significant; an accrual rate now set at 1/60th of an average salary compared with their original offer of 1/65th represents an 8% improvement, and the government have also now made it clear that no one within ten years of retirement on 1st April next year will be affected by the changes.

In simple terms, as Nick Robinson puts it on his blog, the government have tried to alter the offer from a ‘work longer, pay more, get less’ deal to a ‘work longer, pay more, get more’ deal. To highlight this, Danny Alexander reeled off two examples, one a teacher earning a salary at retirement of £37,800, the other a nurse earning £34,200 at retirement, both of whom would receive a higher pension under the changes than they would as things currently stand.

I’m not entirely sure these examples are completely valid though. Alexander quotes the final salaries these two hypothetical workers retire on, but the proposals work under a career average pension scheme, not a final salary scheme. Under a career average scheme, your pension is calculated, unsurprisingly given the name, on your average earnings throughout your career.

But anyway, regardless of whether or not Alexander’s examples are accurate, it does seem apparent that with an accrual rate of 1/60th there will in fact be many people who end up with a larger pension than is currently the case. However, I believe there are still two important questions that need answering: firstly, what percentage of public sector workers are likely to see their pension pot increased by the changes? The government can’t dispute the claim that those workers who see significant improvements in their salary close to the end of their careers are likely to lose out, so it would be good to have some sort of indication as to what percentage of workers will benefit and what percentage will lose out.

Secondly, relative to the increased contributions that employees are going to be putting in, how much better off will they actually be at retirement. It’s all very well saying that a worker will receive a pension pot that is £1,000 more than they currently would, but with contributions going up on average by 3.2%, it doesn’t seem unreasonable to ask what percentage of that extra grand is simply being funded by the employees themselves?

No doubt, both sides are currently considering the maths of it all, but equally there are big political implications to be taken into account. The government’s proposals are more generous this time round than many expected, which could be interpreted in two ways: it could be that they’re so worried about the lack of growth in the economy currently that they recognise the perils of allowing three million public sector workers to go out on strike on one day with the potential for further strikes down the line, and thus genuinely want to find a resolution to the issue of public sector pensions. Such a desire for a resolution may also be reinforced by a recognition that the strikes that took place in July garnered far more public support than the government was hoping for.

Alternatively, George Osborne, ever the political strategist, may well be gambling on offering up a deal that is good enough to seem reasonable, but one that he still expects the unions to reject. The deal has enough concessions, that unless the unions can provide clear evidence that the numbers don’t stack up, they may well find themselves struggling for public support if they decide to go ahead with a general strike.

Much may yet rest on the court case currently going on, in which the unions are claiming that ministers broke the law in their decision to uprate pensions and benefits according to CPI rather than RPI, the measure that was used previously. If the courts find in favour of the unions, then the government will find themselves on the back foot once more, particularly if it is found that they broke the Human Rights Act by enforcing a retrospective cut in pension benefits.

One suspects that having come this far, the unions, or at least the more radical ones anyway, will not back down without further concessions. If that is the case, then they must work harder than ever to show that these proposals aren’t fair. It appears as though there is still a case to be made, but unless the unions get their message across, they’re going to be risking marching alone.

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Posted on November 3, 2011, in Coalition Government and tagged , , , . Bookmark the permalink. Leave a comment.

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