Hiding behind the row over public sector reform is the greater scandal of the failure of private pension provision since the 90s. Although there is bluster about Brown's abolition of ACT, the fact is that pension assets have been slashed through serial stock market busts. The Asian crisis, the dot com crash, the merger and acquisition mania, and the latest banking scandals have all eroded pension funds. It is not the pension industries fault – they are the unwilling victim of the markets. [my emphasis]
Hutton's report does little more than say that if the private sector is in the gutter, public sector provision should be dragged there too. Private-sector employees have as much interest in seeing the example of a good standard of pension provision as the beneficiaries. Otherwise it will be a race to the bottom.
The report also hides the need for the nation to develop a long-term source of wealth for all, and not just a City elite. With a good proportion of public sector pensions funded through investment, they will still be at risk unless City short-termism is tackled, and wealth shared equally. Hutton does a disservice to all.Charlie Sharp
* Public sector pensions are far more efficient than private pensions. The net cost of paying public sector pensions in 2009-10 was a little under £4bn. The cost of providing tax relief to the 1% of those earning more than £150,000 is more than twice as much. [my emphasis] The total cost of providing tax relief to all higher rate taxpayers, on their private pensions, is more than five times as much. By changing pension calculations from the RPI measure of inflation to CPI, pensioners in all sectors will be made worse off, with the loss accumulating as pensioners get older.
Taken as a whole these changes are a substantial disincentive to save. They will encourage people already burdened by student debt, high housing costs, and the withdrawal of the social security safety net, to abandon provision for their old age altogether. This contradicts Iain Duncan Smith's words earlier this week about rewarding saving.The government claims these changes will help reduce the deficit, but they will take money out of the pay packets of today's workers and from tomorrow's pensioners, suppressing demand and damaging any prospect of recovery, as well as increasing pensioner poverty. On public sector pensions, as on so much else, the government has got it wrong.
Richard Murphy Tax Research LLP, Andrew Fisher Leap, Howard Reed Landman Economics, Dr Stephanie Blankenburg Soas, Professor Prem Sikka University of Essex, John Christensen Tax Justice Network, Professor Gregor Gall University of Hertfordshire, Colin Hines Green New Deal Group, Bryn Davies Union Pension Services
A little more detail on how the State subsidies private pensions can be found at