Ben Lowry: The cost to taxpayers of lavish public sector pensions in Northern Ireland is a looming scandal
Not infrequently the quality of governance at Stormont has been subject to fierce scrutiny in this newspaper.
We have reported in particular on the refusal of MLAs to tackle difficult decisions such as health reform.
But there is an area in which the reluctance of our local politicians to consider reform is matched by politicians at Westminster: public sector pensions.
For years I have written and said in broadcasts that this is a massive looming scandal: the public sector is going to enjoy pensions that no-one else in society has, leading to decades in which former employees of the state are far richer than former employees in the private sector. I see no sign that Stormont is even discussing this scandal, let alone tackling it. But then the new Labour government shows any signs of tackling it at a national level either.
Whenever someone such as me points out the over generous public sector pensions we are accused of advocating a race to the bottom or of encouraging the politics of envy, which is nonsense.
The problem has persisted for so long because pensions are complex, and not easily understood, yet the essence of the scandal is in fact simple to grasp: the pensions that are still the norm in the public sector simply do not exist in the private, and have pushed many private companies into bankruptcy. Now they are doing the same to the UK state. But a country as wealthy as Britain will not in fact go bankrupt easily and instead the cost of these pensions is being met in other ways, such as ruinous national debt or not giving key areas of national life the funding it needs, such as education or defence. So-called final salary pensions, in which your pension is calculated as a proportion of your salary at retirement based on the number of years of service, were designed for an age in which people retired at 65 and were likely to die at their Biblical three score years and 10. They typically provided for someone for a short period of perhaps five years after work.
Now, thanks to the advances in medical science, people are living until 80+. Let me be clear, I am not in any way bemoaning these advances: I consider them to be a miraculous reflection of the western civilisations that we have created, that have greatly improved the wellbeing of mankind. It has been a particular joy to me, as it will have been to you, to see people I admire or love live fulfilled lives far into old age. But this wonderful advance is wreaking havoc with the mathematics of how to fund people’s retirement.
The increase in average longevity past the age of 80 means, obviously, that if people continue to retire at 65 the period of time which the pension has to cover is three times longer than it was only decades ago. This means that final salary pensions are utterly unaffordable and explains why they have been ditched by the private sector. But in the public sector they continue. There have been modest changes to them, and new methods of calculation such as so-called career average pensions. But the essence of the final salary scheme persists. Someone who has, for example, worked 30 years in some public schemes will retire on half their salary, index linked for the rest of their life. In Northern Ireland, the average wage is about £30,000, so that means an inflation-proofed income of £15,000, in addition to the state pension. However, someone on the same salary in the private sector will not have such a guaranteed income. Their pension will depend on their pension fund, and to match the sort of pension that their public sector counterpart would get they will need a fund of more than half a million pounds.
I have been watching this disaster unfold. As it happens reporters in the regional press typically earn about the average wage, £30,000 ish. I should emphasise that I do not have access to the private pension fund provision of colleagues but I have been reading and writing about this matter for many years, and I know that most people on such a salary in the private sector will typically have haphazard pension savings. It is not unusual for someone in their 40s on that sort of salary to have a fund worth less than £100k. If they are in a pension scheme, they will typically pay 6% of their salary, and their employer will pay 6%. Thus about £3,600 will go into the fund per year (12% of £30,000). This is hopelessly inadequate for a good retirement.
Stephen Nolan this week reported that some Stormont employees are getting a government contribution of almost 35%. This is paid for by the taxes of everyone, including the 75%+ of employees in NI who work in the private sector. It is deeply unfair. Yet neither Stormont MLAs, nor the Labour government, thought to curb public contributions, or indeed to ask public sector employees to contribute more to their lavish pensions when they rushed to reward their strikes with hefty pay rises.
• Ben Lowry (@BenLowry2) is News Letter editor