In the run-up to today’s biggest industrial action since 1926, the main public sector union in Scotland—Unison—wheeled out its biggest gun. No less than General Secretary Dave Watson went to press and blogosphere to argue that Council pension funds across Scotland are in surplus to the tune of £300m. So what’s all this nonsense from the UK gubmint about public service employees having to pay more and work longer to have less of a pension when they retire?
Seems like a fair question. I mean, look at the pension fund figures that Unison provide:
Unison supply no source for their figures. But let’s accept that they are accurate. Why would that not mean there is no cause for any change to the present ‘final salary’ scheme that council employees enjoy? Well, healthy though such balances may seem, they need to be seen in terms of the future demand on them.
The number of council employees has grown in the last decade—from around 267,900 in 1999 through a peak of 293,200 and now falling slowly through 289,400 this year. They pay between 5.5% and 8% of their salary as a contribution and employers twice that amount. Median salary in the public sector is £23,250 (almost £3,000 higher than in the private sector) and that means the pension funds should be accruing funds at a rate that seems pretty solid:
Pension income = £23,250 x 289,400 x (1+2) x 6.5% = £1,285 million
This is around the total of the table above and close enough for our purposes. In terms of outlay, there are currently around 200,000 retirees pulling down a pension but many of those did not retire from a large salary, which explains why total outlay for them is around £982m—much lower than outlay above
Given that pension entitlement peaks at 40 years’ service, one quarter of the roughly 290,000 workers will retire over the next decade—some 72,000 people. But they will retire with much better salaries and conditions. The average pension will be at least half of the £23,250 median salary above, meaning that, after a decade, an additional burden will accrue to the pension fund of:
projected extra demand on funds by 2021 = £23,250 x 0.5 x 72,000 = £837m
Granted, not all present pensioners will still be drawing their pension in ten years time but, if we allow for a quarter of present outlay as a reduction, we are left with a residual demand on the pension funds of:
Total pension outlay in 2021 = £982m x 0.75 + £837m = £1,573m
Now, whether we take our own calculated income or the Unison figures—both are around £1,280m and within any margin of error—the claimed surplus of £300m soon turns into a shortfall, growing to £300m within ten years. And, given that senior officials’ salaries have rocketed over the last decade, that figure of £11,625 as an average salary will soon be a hopeless underestimation.
Because of increases for those reasons already happening over the last few years, councils have been forced to increase their own pension provision in their budgets. Clearly with them receiving less money, this means that services and jobs will have to be cut if such increments, necessary just to keep pace with existing pension demands, are to continue.
However much Dave Watson quotes snapshot figures from today, local government pensions, as currently constituted, are headed for a brick wall within a decade. Given the even more parlous state of private pensions, there will be no public sympathy for efforts to support a pension “business as usual”—and less for industrial action to ensure that.