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The changes to public sector pensions planned by the government have been roundly criticised by trade unions who claim that they will knock thousands of pounds off the incomes of workers. The TUC is an organisation that represents a total of 58 unions and are outraged at the fact that the government decided to switch the way in which public sector pensions are calculated without consulting anyone. This angry outburst comes on the same day that a report was released showing public sector pensions could cost double the amount they were supposed to and needed to be reformed drastically.

The former work and pensions secretary, John Hutton, has been asked to take a look at these public sector pension schemes to see if any alterations can be made. Chancellor George Osborne said that over £10 billion a year was needed just to plug the gap between payments to unfunded pensions that they support and pension contributions.

The TUC has said that the government’s decision to measure future pension increases against the Consumers Price Index (CPI) rather than the Retail Price Index (RPI) as was previously the case would cost people money as the RPI traditionally has a greater rate of inflation. In real terms, an 80 year old public sector worker who has now retired and was receiving a pension of £6,050 per annum because it was linked to the RPI will now see it drop to approximately £5,330 if it was linked to the CPI based on both index’s rates over the last 20 years. Yet the government claims that the CPI is a more accurate representation of inflation because mortgage costs are not included and pensioners are less likely to possess a mortgage than younger adults.

The General Secretary of the TUC, Brendan Barber, said that by changing just one letter from R to C, the government have succeeded in taking large chunks of pension money off public sector workers. Older pensioners will soon find their pensions cut as things start to mount up over time. Mr. Barber was furious because public sector workers were under the impression that their pension would continue to be linked to the RPI. He said that the government have changed things without informing or consulting anyone.

The Institute of Economic Affairs and a number of other groups have banded together in a bid to ensure that radical reforms in public sector pensions go ahead which has angered the TUC. The Public Sector Pensions Commission believes that public sector pensions are too expensive. They claim that such schemes are worth almost 40% of an average salary which means that taxpayers are forced to pay extra. This commission stated that public sector pensions would cost the government approximately £18 billion in the next year while this figure would soar to £35 billion if all liabilities were measured correctly. The total liabilities of these schemes are believed to be at least £770 billion and possibly as much as £1.18 billion. The commission also stated that increasing the amount that workers contributed to their pension schemes was a good short term solution for reducing the deficit but was not suitable in the long term.

Peter Tompkins of the Institute of Actuaries said that public sector pensions are actually twice as expensive as what the government thinks which means that public sector workers are only paying half of what they should be in terms of contributions. He believes that it is only fair that these workers and their employers pay the correct rate. He also asked why other workers should be forced to pay for pensions that public sector workers themselves cannot afford.

The commission raised the point that the gap between public and private sector schemes is too large. They also suggested a series of reforms to make the schemes somewhat affordable. For example, the commission believes that the rate of benefits accrued by public sector workers is too high. By changing this annual rate from 1/60^th of their final pay to 1/80^th, roughly £10 billion a year could be saved. Also, ensuring that pensions were calculated by the average salary they earned during their working life rather than paying them immediately before they retired would be another method of saving. Another £5 billion could be saved per annum by increasing public sector retirement age to 65, the same age at which private sector workers draw their pension.

Ye Dai Hudd, the Deputy general secretary of Prospect, one of the UK’s biggest civil service unions disagrees. The accused the IoD of hypocrisy, stating that the average pension of directors from the 100 biggest companies in the UK was £3,879 a week which is almost the same as what public sector workers get in a year. Hudd believes that it is incredible that vital members of society are being treated like this while directors take out pensions so large that they are vulgar. Hudd also said that unions want a clear debate but this will not happen as long as people are making things up.

The director-general of the IoD, Miles Templeman retorted by saying the report they received showed that public sector pensions need to be reformed. With an aging society and economic crisis to contend with, taxpayers cannot afford to pay for schemes that are worth 40% of salary. He concluded by saying that public sector pensions need to undergo similar changes seen in private sector pensions.

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