08 Oct 2010

Commenting on John Hutton’s interim report on pensions, John Mason has said that pension provision must not be cut. The starting point is that many employees in the private sector are not having enough put into their pension pot. This means that when they retire they will need pension credit, etc. to boost their income. Effectively this is a public subsidy of the private sector.

All of this cannot be separated from the level of the minimum wage which is presently far too low. At the present level, it is no surprise that many workers cannot put aside money for their retirement. So just as the minimum wage should be increased so that all employees can actually live on their wages, so all employers should have to contribute to pension schemes so that their ex-employees can live properly in their retirement. Employers’ contributions to pension schemes should be compulsory.

It used to be suggested that public sector employees were treated too generously as far as pension contributions were concerned. But John Hutton and his committee make it clear that the vast majority are ending up with pretty modest incomes. The exception is the highly paid employees (in both public and private sectors). As a councillor in Glasgow John saw employees earning over £100,000 per year get big pay increases shortly before they retired; this meant they benefitted disproportionately from a final salary scheme. So should there be an upper limit on public sector pensions? £30,000? £50,000?

Another factor is that when it comes to competitive tendering the private sector is unfairly able to undercut the public sector. The private sector can submit lower bid prices (for capital projects, catering, home helps, or whatever) because their pension contributions are artificially low. So forcing the private sector to pay proper pension contributions would create more of a level playing field.

In summary, the pensions problem is greater in the private sector than in the public sector. Something has to be done soon to raise the pension provision for private sector employees.