Gambling with Our Future; COMMENTARY

Article excerpt

Byline: ALEX BRUMMER

THE Government climbdown over public sector pensions reform, in the face of union opposition, will stick in the craw of everyone who works in the wealth-creating sector of the economy.

Indeed, Trade Secretary Alan Johnson's decision to perpetuate public sector retirement schemes on almost the same basis as at present deals a severe blow to hopes of radical reform to Britain's pensions system.

It also exposes future governments and generations of taxpayers to an enormous and unsustainable burden on the public purse.

One of the key ideas voiced by the Pensions Commission (which had been set up to investigate ways to solve the crisis) was that the retirement ages for people working in the public and private sector should be harmonised.

But by agreeing that the retirement age of current public sector workers will stay at 60, and that pensions will continue to be awarded on a final salary basis, Johnson has preserved the 'gold standard' for them. This comes at a time when final salary schemes in the private sector are being destroyed on a daily basis.

Labour's cowardice in the face of the union threat is all the more serious given the expansion of the public sector since it came to office.

Much of the increased spending on public services has gone into increasing manpower, with more than 600,000 Government jobs added since 1997.

Each of these adds to the potential future liability in public sector pension funds - currently estimated at [pounds sterling]700billion.

Authoritative figures provided by consultant actuaries, who forecast life expectancy and pensions costs, estimate that the present liability will rise by 40 per cent over the next two decades. The surge in liabilities will place an enormous burden on businesses and their employees, who will have to pay through higher taxes.

It could also begin to distort the labour market.

Traditionally, public sector jobs were less well-paid than those in industry and generous pension arrangements were seen as a means of compensation.

the gap has closed recently, as average earnings in the public sector have been rising at twice the rate of those in industry and services. …