The Widening Gap Between Public and Private Pensions

Strategic Insights -

Concerns over pension reform have led to widespread strike action by public sector workers, highlighting the disparity in pension provision between the public and private sectors. The Local Government Association (LGA) estimates that 400,000 workers participated in strikes across England, while the 11 unions organizing the strike claim that over a million employees stopped work. The strike is a response to government plans to raise the effective retirement age from 60 to 65 by scrapping the "rule of 85". This would affect workers with 25 or more years of service, who can currently retire at 60 on financially favourable terms.

Key Takeaways:

  • The Local Government Association (LGA) estimates that 400,000 workers participated in strikes across England.
  • The 11 unions organizing the strike claim that over a million employees stopped work, making it the most significant strike since the General Strike in 1926.
  • Public sector workers are resisting government plans to raise the effective retirement age from 60 to 65 by scrapping the "rule of 85".
  • The local-government pension scheme has a shortfall of £27 billion ($47 billion), and employers' contributions need to rise to 17.5-18% to plug the deficit.
  • The government has retreated from its plan to raise the retirement age from 60 to 65 across the public services, except for new entrants in the National Health Service, schools, and civil service.
  • Defined-benefit plans remain open in the public sector, whereas most have been closed to new employees in the private sector.
  • The public sector's share of pension wealth was double its share of employment and of earnings in 2002.
  • Contribution rates into defined-benefit schemes are generally double those into the retirement-saving plans offered in their place.

Statistics:

  • The local-government pension scheme has a shortfall of £27 billion ($47 billion).
  • Employers' contributions need to rise to 17.5-18% to plug the deficit.
  • 400,000 workers participated in strikes across England, according to the LGA.
  • Over a million employees stopped work, according to the 11 unions organizing the strike.
  • The public sector's share of pension wealth was double its share of employment and of earnings in 2002.

Sources:

  • "The widening gap between public and private pensions is unsustainable" by The Economist. "Country Briefing" on March 27th.
  • Local Government Association (LGA) estimates of strike participation.