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14.12.15

Civil servants get 40% boost from pension cuts, research suggests

Local government employees and civil servants could see the value of their pensions increase by up to 40%, despite recent reforms being introduced to cut down on public sector costs, according to research from the National Institute of Economic and Social Research (NIESR). 

The study compared the changes to deals for workers in six public sector schemes that went live from April 2015 and meant that their pension benefits would be calculated as a fraction of career average earnings rather than final salary. 

The authors of the ‘Who Wins? Evaluating the Impact of Public Sector Pension Scheme Reforms’ report simulated the occupation-specific pension wealth accumulated for a representative employee over the lifecycle factoring in the recent changes to pension conditions. 

According to their research, local government employees and the Civil Service are the ‘winners’, having maintained or secured an increase in the value of their pension by up to 40%. 

This is in sharp contrast to the police and firefighters who have lost around 50% and teachers and NHS workers who have lost over 25-28% of the value of their pensions over their retired years. 

In money terms this means an average non-graduate policeman or fireman has lost £100-115k, but an average non-graduate local government employee has gained around £35k; and a non-graduate civil servant has gained around £16k. 

“The implications of the findings are potentially wide-ranging and pose many important public policy questions,” said the report authors. “Was it fair to impose these pension changes on workers retrospectively when they actually entered these occupations under very different contractual conditions? Did the government mean there to be such a large redistribution of pension wealth away from such key workers as the police, firefighters, teachers and nurses? 

“Was the highly favourable pension position of the local government employees and civil servants under the new scheme understood by the government – or did their union negotiators ‘get it right’?” 

But public sector union Unison said it was “dubious” about the report’s assumptions, especially as it says the government’s reforms were “all about cutting costs” at the expense of scheme members. 

The Pensions Regulator has also warned public service pension schemes to improve their standards of governance. 

New figures suggest that nine in 10 respondent schemes have made progress in establishing a pension board, but only 28% of schemes have a plan in place and are addressing key issues to ensure they comply with the requirements introduced by the Public Service Pensions Act 2013. 

Andrew Warwick-Thompson, executive director at The Pensions Regulator, said: “While there has been some encouraging progress, our research reveals a concerning picture of some public service schemes failing to engage fully with the requirements on governance and administration. 

“We recognise that the reforms are significant and those involved with public service schemes face complex and challenging conditions.”

Comments

John Matthissen   14/12/2015 at 12:08

Public sector pensions are at risk due to their large investments in fossil fuel corporations, whose share prices are supported by discovered reserves, 80% of which must stay in the ground if Paris climate change targets are to be met.

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