Sunday, May 17, 2009

Tortoises and hares: public sector pay and pensions in the news

Yesterday several newspapers carried articles about a PricewaterhouseCoopers study of relative pay and pensions in the public and private sector. The good or bad news – depending where you sit – is that public sector pensions are shifting balance of advantages towards he public sector.

The PWC study assumed the private sector Hare and the public sector Tortoise both started work in 1981 at age 21. The Hare earned and spent more up to the stock market peak in 2007. Thereafter, a more broken employment history and a much less secure and generous private pension meant that the Hare ends up losing. The accumulated non-pension wealth of the Tortoise is higher from around age 55 and, by the time both die at age 80 in 2040, the Tortoise has accumulated non-pension wealth of around 30% more than the Hare to pass on to his descendants.

We can all query some of the assumptions but the delicate issue of public sector pay remains.

I would be interested in the relative positions of the Tortoise and Hare’s female equivalents. When the affordability of public sector pensions is queried, the unions (quite legitimately defending their members’ perks) point out that many public sector pensions are looking forward to “tinfoil” pensions rather than “gold-plated”. The reasons for the small size of pensions reflects the structure of public sector pensions – with their final salary basis which favours full-time career civil servants rather than those female members who are often part-time and passing through the public sector. It would be good to see the unions promoting the interests of their female works in the debate about the fairness and affordability of public sector pensions.

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