Danny Alexander’s line on pensions is simple, clear – and wrong. It is this: public sector pensions are ’unaffordable’, out of synch with private pensions, and have to be ‘reformed’. Payments into pension schemes therefore have to be increased – for teachers, medics and local government workers their contributions could double from next April. The retirement age has to rise – from 60 to 66 by 2020, hitting particularly hard women now aged 53-55. And pensions, when finally received, have to be cut back – by changing the accrual rate from final salary to average over working life.
The result is that local government workers, faced with an average additional 3% increase in their contributions which will then yield a much reduced pensions, are likely to abandon the local government pension scheme in droves as no longer worthwhile, thus adding to the State’s welfare bill in retirement and perhaps collapsing the investment funds which this pension scheme feeds. It was fear of this that forced the Government to put up Alexander to go public on their case even while still in negotiations, throwing in concessions to the lowest paid to keep them in the scheme and to divide and rule the unions over any strike action. But the Government case is misleading for much deeper reasons too. (more…)