But Even Though This Was True

Public sector workers are better paid than their private sector equivalents. Public sector unions, please take note By Ruth Lea for the Daily Mail

Published: 10:22, 19 July 2012 | Updated: 16:10, 19 July 2012

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The Office for National Statistics (ONS) quietly and unobtrusively continues to cast light on the persistent, if not widening, differences in the pensions and pay of employees in the public and private sectors.

The ONS released some disturbing data on private sector pensions this week. They demonstrated that “defined benefit” pension schemes, where the pension is usually linked to the employee’s salary, are dying in the private sector. The much-treasured final salary schemes are the best-known of these. According to the ONS over a third - 34% - of employees benefited from defined benefit schemes as recently as 1997. Last year the proportion was down to 9%. In a decade’s time they will have probably all-but-disappeared.

As pension funds take a battering, many employers have responded by closing their final salary schemes

The reasons for this near-terminal decline have been well reported. Increasing longevity, welcome though it is, adds to the costs of pension provision for employers in final salary schemes. A man retiring at 65 in 1950 could expect to live to 77. Would have just 12 years of retirement. A 65-year old man retiring today will probably live for another 19-20 years. And the once-proud occupational pension funds have been battered by a combination of factors including underperforming stock markets, low interest rates and Gordon Brown's infamous annual “£5 billion raid” on pension funds, introduced in his first Budget in July 1997. It cannot be any surprise that many employers, faced with rapidly mounting costs, have simply closed their final salary schemes.

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The situation is very different in the public sector, where defined benefit schemes are still the norm. And they will remain the norm even after the current reforms, in which final salary schemes will be replaced by career average earnings schemes. Moreover, they are very generous by private sector standards. The recent industrial action by the doctors, albeit supported by a minority, served to highlight just how much more generous public sector pensions can be when compared with private sector equivalents. It was widely reported that the “average” doctor, retiring at 60, could expect an annual index-linked pension of £48,000. A private sector retiree would have needed to build up a pension pot of £1 million in order to receive such a pension.

For decades it was claimed that generous public sector pensions were a compensation for lower pay. This claim was prevalent when I joined the Civil Service many years ago. But even though this was true, it is no longer the case. Again the ONS has published some killer statistics. Earlier this year they estimated that public sector employees were paid on average 7.7-8.7% more than those in the private sector.

Pensions protests: The government's attempts to reduce the public sector wage bill have been met with fury by unions

Granted, it is difficult to make direct comparisons between the two sectors because of differences in the types of job and characteristics of the employees. The public sector has a higher proportion of graduates, for example. But the average “public-private sector pay gap” is still significant. Moreover, the ONS conveniently provides a breakdown of the pay gap by educational attainment. For graduates and above, the private sector does pay more than the public sector, reflecting the “tail” of very high earners. But in every other educational group, earnings in the public sector easily outstrip the private sector.

I am not in the business of denigrating the public sector. As I have already conceded, I was once a public servant myself. But the current mismatch in pension rights. Earnings strikes me as quite out of kilter. The Government is, of course, attempting to pare back the costs of public sector employees by pay freezes, reduced headcount and pension reforms. One of their wholly understandable motives is to put a brake on the public sector wage bill in times of fiscal austerity. Suffice to say, several of the public sector unions are opposing the changes with vigour.

But the ONS’s figures tell a convincing story. Public sector workers are better paid and better pensioned than their private sector equivalents and some rebalancing is quite in order, if not well overdue. Public sector unions, please note.