There is one subject that is guaranteed to divide messageboards (which I have given up for 2012) and that's the private sector v public sector pension debate.
One of the more interesting posts (BBC site) to appear last year when the public sector workers day of action took place was from one poster who said that they had forgone a possibly higher salary in the private sector to work in the public sector on the basis that there was the promise of a higher pension at the end of their stint as a public servant. I couldn't decide whether or not this was an admirable intention or simple economic stupidity, I do however know people who have 'gone without' during their working lives and saved hard in a private pension scheme so that come retirement they can enjoy the autumn years of their lives without having to fall back on the state for help. There are pros and cons to both arguments, however given the relative decline in my own health over the past eight years I am glad that (a) I am still in full employment and that (b) I am still able to enjoy the income that employment provides now rather than wait another fifteen years.
The public sector and private sector in an economy are certainly dependent upon each other, whether that is through the awarding of contracts, the leasing of equipment or at its very basic the paying of tax and national insurance by the private sector so that the public sector can be funded. The big problem with public sector pension schemes of course is that they are not fully funded schemes, it doesn't matter how much a teacher, policeman, fireman, tax inspector, contributes the balance of their pension will be paid for by the private sector. If you look at any of the schemes details you will see that most public sector schemes are funded by approximately 33% contributions from the workers and the rest comes from the taxpayer, and whilst I know that some taxpayers are also public sector workers all that is happening there is that money is being recycled there is no new money being introduced into the system.
Anyway according to a survey published yesterday from the ACA (Association of Consulating Actuaries) the gap between public and private sector pensions is set to grow even wider. The survey of more than 450 employers found that five million public sector employees are being offered pensions that are 'far better than those in the private sector', while more and more existing private sector defined benefit schemes are closing to new entrants. As a result, the ACA is calling on the Government's promised paper on 'reinvigorating workplace pensions' to be bold.
Auto-enrolment, which is being rolled out from October this year, is designed to help employers and employees to and ensure that pension funds are built up, but so far the Government has been forced to delay roll out for smaller firms. It is also feared that businesses will be downgrading their existing pension offering in order to counteract the cost of auto-enrolment - the ACA survey found that 27 per cent of those surveyed are planning to do this. The survey found that just over a quarter of businesses have budgeted for the cost of workplace pension auto-enrolment, which will require employers to contribute at least of three per cent of an employee's salary.
Commenting on the survey results, ACA Chairman, Stuart Southall said:
"The Government needs to be bold in helping private sector employers so they can consider new ways to boost pension savings over the mid to longer-term so public sector pensions are not ‘far better'. A more level playing field as between private and public sector pension provision is clearly a sensible aim but it is possible that the current Government attempts to achieve this have already been undermined by the seismic collapse of private sector pensions and, in both sectors, it seems probable that the later the cure the stronger will have to be the."
Oh and I can't resist the old definition of an actuary being somebody who found accountancy too exciting.