Recently, the TUC have told us about its campaign to keep the public service sector pensions arrangements at substantially their current level. Yes, these are the people who provide us with many services we regard as necessary and yes, the majority are on middling or lower incomes, whose pensions will reflect this.
As ever, the debate has been affected as well as the pension schemes by the activity of rogue elements in the most senior positions who have awarded themselves spectacularly generous arrangements. Not quite in the financial sector class, perhaps, but enough to make the ordinary persons eyes water.
The TUC assures us that the present problems can be “managed” and the money can be available. This depends on which Santa Claus you have been talking to. Also, the TUC gives the impression that all the public sector is equal and more or less the same. Equality, liberty and fraternity, maybe, but life isn’t quite like that.
On 2nd May 2011, this year, in “The History Men” in this blog there was a brief explanation of the teachers superannuation scheme which is unfunded, that is the pensions to be paid out derive, in theory, directly from the money paid in by teachers currently employed and their employers.
Clearly, for this scheme as well as other unfunded ones, if the income stream is not there then the government has to stump up the rest. Currently, because government tax income does not match its obligations this is covered by borrowing. At present, this is at low rates of interest.
Elsewhere, there is a complicated and varied set of arrangements for the many different categories of employees in one or other part of the public sector. Often the government might add to the problems. For example, when some NHS salaries had their huge boost under Labour this translated into major impending pension liabilities. Some senior staff took the money and ran as soon as they could.
Many schemes are funded with the trustees under an obligation to do the best they can. Under Labour at one stage they were urged to get into the big time and take on investment opportunities in the bandit territories of global capitalism.
When this went wrong and our government needed to borrow a lot in a hurry, they were then leaned on to put their pensioner’s money into government bonds. These when bought were low interest bonds which means that the buyers were paying historically high prices for them.
By now, most readers will see where this runaway train is heading. With the stock market highly volatile and dominated by financial sector ups and downs, never mind relentless speculation, there are now suggestions that the bond markets are due for a correction at least, even a crash of some kind.
So all these funded pension reserves could be stuck not only with elements of toxic debt from the past obtained at the behest of government, they could also be stuck with large amounts of reduced value government bonds that pay low interest at a time when inflation is seriously on the up and large numbers of staff are being dumped into early retirement as staff reductions occur.
So either the government has to make up the difference, either by borrowing at greatly increased costs, or by hitting taxpayers very hard either in central government taxes or local taxes. If the bond markets turn nasty then the borrowing option may not exist.
The only way out could be to freeze or even reduce public sector pension payments and to substantially change current schemes to get the unfunded ones back into balance and the funded ones able to sort out their particular mess. There may be some funded schemes that go into default.
Add to that the prospect of radical reductions in pensioner and other consumer spending, something of a disaster in savings and a few other delights such as inflation hitting real incomes and it does not look good. The TUC does not and cannot have a real answer to these problems.
Why are so few people trying to explain this?
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