Thursday 10 March 2011

Public Pension Reform

I do really wonder about the wisdom of our Government.

The Hutton report is making some very sensible suggestions about how we move the Country to a place where we can actually make affordable promises to people about their pensions. The current system in the public sector is clinging to is unaffordable so will never be delivered in 10-20 years time. It will be too expensive and worst case will drive the country to default or some kind of old vs young civil war (see this post from the very early days of this site).

However, to discuss this reform in 2011 is madness. With the slight slowdown in public sector spending causing the media to whip people into a frenzy and an admirable approach to changing benefits and getting people back to work, the Government has enough problems. No mention either another potential plan, of reducing the crazy taxes Gordon brown put in place which ruined private sector pensions and made the disparity ever more stark.

This issue is going to make the Unions go even more nuts. Of course, the problem will have to be addressed, but this is surely a 2014 or even second term matter. Trying to do everything at once is a sign inexperience and this one will come to a sticky end.


James Higham said...

The current system in the public sector is clinging to is unaffordable so will never be delivered in 10-20 years time. It will be too expensive and worst case will drive the country to default or some kind of old vs young civil war ...

Not the slightest doubt in the world about it.

Anonymous said...

I'd disagree. One problem is that governments get weaker the closer they get to an election. The longer they delay, the more they would water down the reform or worse, commission another report, royal commission or green paper.

Old BE said...

I agree with Anon, the Blair government spent its whole life being criticised for being piecemeal and leaving things until it was about to get voted out.

No matter what "Dave" Prentis says, public pensions are a root cause of the deficit in the immediate and long term.

The Major said...

Unusual for me to disagree with you but I really think it better to tackle this one now. Leave it till 2014.....the momentum will be gone.

andrew said...

The unfunded, unmeasured (on an honest basis), undiscussed public sector pensions debt is bigger than the official one (widely reported, but no-one really knows) and if interest rates stay as they are, the hidden deficit is probably growing about the same speed as the official one (my guess on this one)

The time to make a change was 10 years ago really.

If you dont make a change now, when those in the public sector are a little relieved to still have a job, you never will.

On the other hand, we will never default on these promises.
We will just print more money to pay those inflation linked pensions.


I commend

"When Money Dies: The Nightmare of the Weimar Hyper-Inflation by Adam Fergusson" to all.

I am not extensively read on history.
Not only does it make me think that the germans were in an intolerable position and would have looked to any madman, and it just happened to be hitler, and hitler happened to tap into the widespread anti-semitism meme, It also seems to indicate that the french were the cause of resurgent german nationalism by basically insisting on unfeasibly large WW1 reparations and then basically invading/occupying a good fraction of germany when it was not paid.
The UK seemed to stand around and say that this is not very nice or fair.

The book also discusses what happens when money stops working.

Anonymous said...

I side with Drummond on this one: get the pain over with now, rather than later. The extremely important thing to remember, which may have slipped Unslicker's mind temporarily, is that the current Government is a coalition, and not a particularly stable one at that.

Inflicting pain on the electorate near an election especially with the only two sane parties currently in coalition with each other is electoral suicide; that way lies another Labour government, and if this looks at all likely we'll see an exodus of bankers and big business like nothing we've ever seen before. As things stand, we REALLY do not need Labour in power for a long, long time but the electorate is unfortunately really, amazingly bloody stupid, stupid enough to re-elect the Moron Party again.

Bill Quango MP said...

Well, I'm with CU.
Labour was so worried about popularity, having been out of power for 4 elections, that they didn't do anything for the first term.

Many who supported the coalition to tackle the debt, get rid of labour's over burdensome red tape, over legislated society will not support a 'Tory ideological' cuts party.
Its just too easy for a union-led opposition to paint that narrative.

There won't be a second term without support for the actions taken.
Fight the main battle, which is the economy. Fix that, and the 'cuts' are seen to have worked, labour's 'do nothing' is discredited and a second 'reforming' term, under more favourable conditions can be achieved.

We need only look to the terrible problems Obama has had trying to do the wrong, if necessary, things.
He suffered big reverses in the mid-terms. That was 'Saint Obama,' the hero of the free world, the most adored politician in the history of politicians, getting a kicking for doing too much, too quickly.

Steven_L said...

The report is more 'one size fits all' nonsense that is just a rehash of things written by HMT civil servants a decade ago. In terms of LGPS:

1) Why does a years contribution at 21 buy the same entitlement as at 61?

2) If a 23% of salary contribution is enough to buy 0.0167% of final salary, then why not have sliding scale of options down to 13.5% (the employers contribution) to buy 0.01%? What's wrong with choice?

3) Why not lifetime 'opt out' so people who don't trust politicans and bankers can just take the employers contribution and invest it themselves?

Anonymous said...

Hmm, tricky. I hear what BQ is saying, but my gut reaction is that if you're going to have a fervently whipped up public sector anyway [with, ahem "cuts"] why not do it properly. Bring on the strikes- lets have the differences between public and private workers exposed in the media [I know, I know; but if MIGHT happen if the public sector kick off] and then lets see where the sympathy lies. 20% pay cuts in my sector two years ago. Reduncancies this year. my sympathy gland is no longer functioning for mere pay freezes and pensions brought down to match my own...

Jim said...

It needs to be done now. Because once its done, no-one will dare reverse it, for the simple reason that any future govt (of any hue) will be dealing with such financial problems that the last thing they will be able to do is increase their future liabilities, and reduce their current tax take (higher employee contributions are tax by another name). While a left leaning govt might baulk at actually implementing such reforms from scratch, you can bet your bottom dollar once in power they'd invent a reason not to undo them.

Rather like the way the congestion charge was brought in by Ken Livingston, but not repealed by Boris. Once its in the state apparatus gets used to the extra cash and can't do without it, whether left or right are in charge.

Demetrius said...

Having just posted on the subject saying more or less that there is major strategic problem whilst I understand your point about tactics it is probably too late now to delay much.

alan said...

I'm not sure what side of the debate I stand on. The sooner we fix the problem the better, but the gov does have its plate full.

It is obvious that the Tories are having a major PR failure. The other day BBC 1 news beat was ranting on about 1000's of coppers losing their jobs, but there was no mention of the huge amount of red tape and paperwork introduced by Labour. Yet a couple of years ago the Beeb kept going on about coppers spending all their time filling in paperwork.

I understand that the media is all about selling copy, rather than telling the truth. But the beeb is publicly funded, surely the government can knock some heads together and get the beeb to actually tell the whole story.

I'd like to see the media, in general, being held accountable for their actions. The media's current rants about the cuts are starting to sound like they are inciting civil unrest. Fortunately for the media Labour abolished the sedition laws.

CityUnslicker said...

Nice comments all - I am partially convinced. In my heart we need to lance the boil- but if in doing so the lib dems blow up and we get an election then the country is really lost. Imagine Labour in power next year again....

Also, if this is a kitchen sink strategy they tories still have it wrong, many of these announcements are a year late.

Anonymous said...

Well, Let them be in power, and clean up their own mess for a change. Then perhaps we could dispense with their perpetual sanctimonious crap about "idealogical" cuts, and the upcoming bilge about how infaltion was cause by the nasty party.

Me guv? Inflation guv? No guv.

Nother wheelbarrow of cash guv?

Jim said...

@Anon 8pm: precisely. The Tories need to use this Parliament to do what is right for the country and b*gger their re-election prospects. If pushing ahead with necessary reforms crashes the Coalition and we get a Labour govt or a Lib/Lab coalition, great. Let them sort out the problems. They will undoubtedly screw it up, and hopefully finish the left for good.