There are many factors in place that influence the need to conduct public sector pension reform. People are living longer so pensions need to be paid for a greater period of time. There has been more volatile Investment performance, which has been hindered by the previous government’s suspension of tax relief on pension fund income. Interest rates have fallen, meaning lower returns from money purchase pension arrangements.
Within the private sector, final salary pension schemes have been largely abandoned because they were judged to be unsustainable. Nobody in the public or private sectors should want a system of pensions that cannot stand the test of time. There needs to be an outcome that is more predictable than that, and which can realistically be funded by all taxpayers.
Pensions are a complex area and inevitably any negotiations can rapidly become quite detailed. It is significant though that the government is continuing to propose guaranteed pension levels, something that is rare in the private sector. At the same time, it is suggested that there should be an average increase in contributions of 3.2 per cent of salary from 2012, with the lower paid contributing less and the higher paid contributing more.
It is understandable that such proposed reforms should provoke debate and discussion. The changes now on the table also need to be seen alongside other wider impact measures such as the triple lock to protect state pensions. Under this proposal, state pensions would be uprated by the highest of earnings, prices or 2.5 per cent. The use of the earnings comparison would be a really important reform.
Public sector unions are rightly engaged in their historic role of trying to protect their members’ interests. To this end, they have been involved in negotiations with government to try and bring about a fair settlement. It is therefore unfortunate that strikes are now imminent and arguably premature.
The economy is only now beginning to recover and strike action would appear to indicate a failure on both sides of the negotiations. It should surely be an act of last resort. Critically, strike action at this time could seriously weaken the economy, not least because of people not striking, who may be prevented from working. At the end of the day, if we are relying on the private sector to provide a new economic stimulus, it makes little sense to weaken the effect of that, and ultimately our ability to fund fair and sustainable pensions.
Councillor Bob Lanzer, Leader of Crawley Borough Council
28th June 2011