“Ticking timebomb” pension threat extends beyond CA

While we left southern CA to get away from the daily political news, escaping is easier said than done. No matter where we go the bottom line is that the world is experiencing some of the same challenges we face. Case in point is our stop at Heathrow airport in London on our way to South Africa. The Daily Mail published a commentary which confirms that we are not alone in facing the ticking timebomb of pension obligations. That August 27th headline read:

 “Pension threat to 2m town hall staff.”

Two million town hall staff could have their gold-plated pensions slashed to plug a massive budget shortfall. Ministers are considering stripping council workers of final salary pension schemes.

Doctors, nurses and teachers could also see their pension schemes scaled back as the public sector burden becomes unaffordable, with the elderly living longer and pension funds being hit by the economic crisis.

But pensions experts expressed doubt that Labour, which relies on union funding, would tackle the issue and risk triggering “winter of discontent’ industrial action in the run-up to the general election.

There is growing anger about the widening pensions ‘apartheid’ between the public and private sectors, with many firms having to close their final salary pension schemes. The vast cost of public pension schemes is a growing burden on the taxpayer.

There is an estimated shortfall of 60 billion pounds ($96 billion dollars) in the local government pension pot and a quarter of every council tax bill goes towards it.

One idea is to move pensions from final salary, where the amount received is based on the level of salary at retirement, to a career average scheme, where it is based on the average of wages throughout the employee’s working life.

This is already the case for new entrants to the Civil service but imposing it on existing workers would mean many losing thousands of pounds a year from their pension, with some senior staff losing more than 100,000 pounds a year ($158,000 USD).

A spokesperson for Unison, the biggest local government union, attacked the idea, saying the: “The average pension in local government is 3,800 pounds a year. It really is very low.’

There is also scepticism that Labour is serious about tackling public sector pensions, seeing as their main paymasters are the unions.

Radical proposals put forward in 2004–months before the last general election–were not taken forward, and Lord (Adair) Turner’s 2005 report into pensions was specifically banned from discussing the public sector.

Ros Altmann, a former Treasury advisor, said: ‘When everyone else is facing changes to their pensions, it is unrealistic for people in the public sector to think theirs should be immune.
‘We can’t expect taxpayers to continue to support what they cannot enjoy themselves.
‘It is surprising to hear Labour is talking about this just months before an election, as you would not have thought they would want to antagonise people.

‘And if they are re-elected, it would not be a surprise that nothing happened.’

 A Department of Communities and Local Government spokesman said suggestions of a change to a career average scheme were based on speculation.
The spokesman added: “The government will continue to make sure the Local Government Pension Scheme remains fair, solvent, protected against risk, and affordable to the taxpayer, and is maintaining a constructive dialogue with scheme members to ensure this objective.
As we’ve made clear before, any statutory changes to the scheme would be subject to a formal consultation process.’

In that same newspaper is a comment that reads in part. “How can this (public sector benefit) be justified when those on the public payroll enjoy so many other advantages–including greater job security, higher wages and earlier retirement?
The commentary closes: “But at least politicians have started to notice the ticking of the pensions timebomb, which poses perhaps the greatest long-term threat to Britain’s solvency.
Now bring on a government with the guts to defuse it.”

Does this pension challenge sound familiar?

About Larry Gilbert