Friday, 17 June 2011

Pensive over pensions

While understanding the feelings of public sector workers over the proposed worsening of their pension entitlements, my sympathy is somewhat limited. I'm more than content to pay tax that goes towards employing people to provide services that benefit society, and I'd certainly argue that they should be decently paid for what is often undervalued work. I also accept the argument that taxpayers should fund pensions for public sector workers. In the private sector, employee pensions are funded out of profit, and employers provide them to attract and retain good staff. If we as a country want to attract and retain good people for public services, which don't make a profit as such but benefit society generally, then we'll have to put up the money. But it's far less clear to me why my taxes should pay for pension schemes that are generally accepted to be far better than a private sector worker on similar pay could expect.

I exclude from this the armed services and the emergency services; the hazardous and unsocial nature of their work amply deserves special treatment. But I do often think many in the public sector have no real idea what it's like in the private sector. Virtually nobody in the private sector has a defined benefit pension any more; it's all defined contribution. In other words, no promises what you'll get, you take the risk of how the investments go. And for self-employed people like me, my entire pension contribution is literally cash out of my own pocket. I saw figures from PwC that said that the average private sector worker would have to put nearly a third of their salary away to get a pension of the same level as an equivalent public sector worker with the same years of service.

The public sector also has the advantage that their pension scheme is underwritten by the state, and the management charges are tiny when spread across the number of participants. I bear all the charges on my modest plans. And I don't get paid holidays nor do I get paid to be off sick, nor do I get any kind of pay-off if I lose a contract. That's all part of the territory of being self-employed, of course, and I knew all that before going for it. But I pay tax and NI at the same rate as everyone else, and I look at my pension statements and the news that much of the public sector is threatening to strike over the pensions that even after reduction will be far more generous (partly at my expense) than I can manage for myself, and you'll excuse me if I don't come on the march...

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