CT p46 Vital Spark Dec08.qxp 20/11/2008 16:06 Page 46
UIforwardVital SparkUIback
Public Sector Pensions and the
Scottish Economy
Research has suggested public sector employees receive
£210 more per week than staff in the private sector. What
does it mean for our economy? By David Davison.
To paraphrase George Orwell, “all men are created which are final salary schemes compared to only
equal, but some are more equal than others.” The 15% in the private sector employees having access
description now aptly applies to those employees to final salary schemes.
in the public sector who maintain access to gold Member contributions to local government
David Davidson standard final salary pension schemes while their schemes have increased from 6% to 6.3% on
private sector counterparts see their retirement average – WOW!
prospects decimated. This highlights the minimal effect of public
You will be told that public sector pensions sector pension reform and how badly the tax payer
compensate staff for having lower earnings on has been served through the negotiation process.
average. This might have been the case 10 years So how much is this costing us as tax payers?
ago but it is far from representative of the position On average private sector workers pay 91p in to
today. Statistical evidence suggests that public public sector pension schemes for every £1 they
sector earnings are now higher than in the private pay to their own schemes!!
sector at all but the highest pay levels even The cracks are beginning to appear with public
excluding pension benefits. Add in the pension sector schemes highlighting significant funding
benefit and this represents an overall deficits. In September the Scottish Government
improvement of equivalent benefits in the private pledged £32m of tax payers money to improve the
sector anything up to 18%. funding position of the police and firefighters
You will also be told that public sector pensions schemes.
have recently been reformed but research carried You have to ask the question if this will solve the
out by the Pensions Policy Institute demonstrates issue completely and indeed if it does, for how
the minimal effect of these changes. long. Kenny MacAskill, Scotland’s justice secretary,
The reforms have reduced the average value of has admitted that the Scottish Government is
“Sooner or later schemes to employees from around 23% to 21% “also addressing the longer-term pension issues”
the of salary with schemes for the police, armed but is there the political will to do so?
Government is forces and the fire services reduced from 37% to New Labour came to power wanting to think the
going to have to 33%. Where final salary schemes still remain in unthinkable and say the unsayable but has
cut public the private sector the average value is 20% of patently been unable to do so when dealing with
sector salary and where schemes have been replaced Public Sector pensions.
pensions.” with money purchase alternatives this falls to 7%. Sooner or later the Government, of whatever
85% of public sector employees are members of hue, is going to have to cut public sector pensions.
occupational pension schemes the vast majority of And ideally sooner.
This is a debate the Government, acting on
Author biography
behalf of taxpayers, cannot afford to lose and we
should all be watching developments with interest.
David Davison is a Director at Spence & Partners, independent actuaries and
Perhaps the more mainstream economists do
consultants and of Dalriada Trustees, a firm of professional independent
have a contribution to make on this. J K Galbraith,
trustees. David’s work tends to focus on the SME sector and also advice to
in a letter to President Kennedy, said: “Politics is
charity and not-for profit organisations. He also co-ordinates the provision
not the art of the possible. It consists of choosing
of specialist support services to other professional firms.
between the disastrous and the unpalatable.”
Are you really listening, Mr Brown?
46UIbackUIforwardCABLEtalk • December 2008
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48