Monday, 2 May 2011

The History Men

Just as the aftershocks off Honshu continue so those of the Brown and Blair years do in UK politics. In the last few days, while other things were going on, the head teachers union voted for a strike at an alleged 98% in favour. This followed a similar move by other teaching unions.

Little mention in the media was made of the 2006 government agreements implemented in 2007 which gave a number of “improvements” to retirement provisions for teachers; nor of the gradual relaxation of conditions and other improvements made down the years.

The teacher’s pension scheme is an “unfunded” one which was founded and run for many decades on the basis of the contributions made by employers and teachers year by year meeting the outgoings of pensions payable to those retired.

In the time of my father’s education before the First World War there was relative price and wages stability and in any case the qualified teachers were in a minority in the schools. By the time I was in school there were still many unqualified and outside the scheme but of those who were entitled many did not make it to take their pensions at 65 for men and 60 for women.

In any case for both sexes of teacher the effect of wars on one and family needs on the other meant that a good many of those who did make it over the last fence did not put in enough years to have full entitlement.

Until the 1970’s moreover, there was no adjustment for inflation nor were there widow’s pensions or provision for early retirement other than in the most serious medical cases. By then the drive was on to end unqualified teachers and to extend the training and increase the qualifications of all and by definition pay and eventual pensions.

Additionally, all the salaries were determined on publicly based national scales centrally determined. So by the 1960’s a Head teacher retiring from a £2,000 a year job would have £1,000 or less and a teacher on the basic scales from around £750 at the top of their scale to £375 or less.

Over the last three decades, early retirement moved from being a device to clear older teachers to make way for new more highly qualified ones with longer training to what became a “right” along with a raft of other tweaking to add to the liabilities.

The theory was that the uprating of the teachers and their salaries would give the extra inputs of contributions to meet the added expenses of earlier and longer retirements of relatively lower paid teachers, especially as a period of surpluses had occurred.

That all this might begin to run out at some time and the question of deficits arise was all put out of people’s minds. This was a decade or two away. Then the central government began to change the way the schools were run and notably, pay at the top end.

So now we can have someone on £100,000 retiring on a £50,000 a year pension, index linked, at not long over 50 years of age. They may have worked for 35 years or less yet be retired for 30 or more years.

This was never going to add up. No wonder the relevant Head teachers voted to strike if this was going to be taken away from them.

The trouble is that Gordon Brown and friends not only needed to buy the teachers and their influence on the voters but they believed that the Goldilocks economy would cover any deficits especially if covered by managed inflation. Already most of capital spending on schools was shifted off balance sheet to PFI.

The trouble is that if you pay a group of employees more then you create a greater eventual pension liability on a final salary scheme. If it is a scheme based on those paying in, if this falls short where does the money come from to cover the payments?

Does it come from taxes? That is everyone becomes contributors indirectly. Does it come from raiding other schemes, in the case of New Labour the private pension sector? Does it come from reserves? But we have no reserves and Gordon sold the gold. Does it come from borrowing? This just puts off the evil day.

Does it come from inflating the economy by creating money? We have tried that before and it finished in disaster. In our globalised world now we could never get away with that one in the way that Wilson and Heath tried to.

The teacher’s pension fund now does not and will not work on the existing basis. This is especially the case if those who do retire at the highest levels of salary and at an early age are taking out historically far greater multiples of pension than those from ordinary levels of salary.

The teachers pension scheme is just one example of the serious and damaging mess that almost all public sector pension schemes were left in by 2010 for the governments of the future to sort out.

I understand that History these days is little taught in schools.


  1. Interesting post. I have personal experience of this problem and find it difficult to understand why so many public sector pensions are not based on a fund. The fact that many public sector pensions do have a pension fund makes it even more difficult to understand why they never became universal.

  2. An unfunded pension scheme is a ponzi scheme, which is illegal in the private sector. All governments who allowed unfunded schemes in the the NHS, the armed forces, teachers, as well as partially funded schemes like the Local Government Pension Scheme, are guilty of deliberately leaving this developing mess, in the most irresponsible manner.

    I'm interested to know what happened to the contributions at the START of these schemes - those contributions that should have been invested. At that point in time, the schemes cannot have had significant outgoings, so where did all that money go?

    We either need our politicians, of all parties, to be more intelligent, or more honest.

  3. Unfortunately Phil all the excess payments were used by the governments of the day to fund their own shortcomings.So we paid for other peoples benefits,health etc.