Public Sector Pensions

Nia Griffith Excerpts

Thursday 8th December 2011 Commons Chamber

[Nia Griffith (Llanelli) (Lab)]

I want to pay tribute to all those public sector workers who work hard, often in gruelling and unglamorous tasks, day in, day out. Some are very highly qualified and have chosen to work in the public sector, passing up opportunities to work more lucratively in the private sector. Traditionally, the pay-off has been job security and pensions. Those who have perhaps not been so lucky as to get many qualifications are often in thankless tasks for which they get very modest pay—cleaners, refuse collectors and so on. They receive low wages and meagre pensions. The average public sector pension of £5,600 and the average for local authority workers of £3,000 are far from the gold-plated myth peddled by the Conservative party and its friends in the media.

Back in 2007-08, there were tough negotiations on public workers’ pension schemes, and I am sure that I was not the only Member who received correspondence, particularly from teachers. The then Labour Government entered into dialogue and negotiation, however, and unions played their part responsibly, accepting the need to make public sector pensions sustainable. Changes were agreed. The deal negotiated with the previous Government in 2007 made costs stable, and the National Audit Office described it in the following way:

“The 2007-08 changes are likely to reduce costs to taxpayers of the pension schemes by £67bn over 50 years, with costs stabilising at around 1% of…GDP or 2% of public expenditure. This”

is “a significant achievement”. Before this Government made any changes at all, public sector pensions had both been reformed and made affordable.

I turn now to the division between the private and public sectors, which is a disgraceful way to approach this topic. Frankly, we are all involved in both, whether through family members or people in our communities. John Hannett, the general secretary of the Union of Shop, Distributive and Allied Workers—a union that operates entirely in the private sector—says that it supports the strikes:

“We support our colleagues in the public sector in their fight for fair and decent pensions and to protect the services which our members rely on.”

We all know that the real scandal is in private sector pensions. Sometimes we are told that the costs or the recession have meant that nine tenths of final salary pension schemes in the private sector, once the most popular arrangement, are now closed. The fact is, however, that the employers have realised that they can get out of their obligations to society and their employees, leaving the taxpayer to pick up the costs of supporting people in retirement.

One of the biggest dangers is that more people will opt out of pension arrangements. There are three main risks associated with that. First, if people earning less than the average are asked to contribute about £80 a month, they will face a terrible choice of either feeding and clothing their children now or paying towards a pension for their retirement. That will leave many short of a pension when they retire.

Secondly, that leaves a huge problem for the state, because of what it will have to pick up. We will be sitting on a ticking time bomb. With private sector pensions going and public sector workers opting out, a huge number of people will be totally reliant on the state in their old age.

Thirdly—a problem for the present day—if people are not contributing now, there will soon be a cash crisis in those pension pots, which is something I do not think has been fully addressed. There will be a present-day shortfall in the money available for paying out to the people who have paid in to their pension schemes. Those are very real problems. Imposing a 3% increase on people in this undemocratic and devastating way is completely unacceptable. It needs a total rethink, and the sooner, the better.

--- Later in debate ---

[Mr Jones]

I refer the hon. Gentleman to the comments of Lord Hutton, who pointed out that his commission felt that there was a rationale for short-term cost savings in recognition of a substantial, unanticipated increase in longevity. In practice, these savings can be realised only by increasing member contributions. To suggest that it is impossible to address this problem in any way other than by increasing contributions is frankly fallacious and deceitful, and the Opposition know that.

The hon. Member for Arfon and others asked what negotiations were taking place. It is important to put it on the record that my right hon. Friend the Secretary of State for Health has met the NHS unions today, and my right hon. Friend the Minister for the Cabinet Office is also meeting the civil service unions later today. Negotiations are indeed proceeding apace, and to suggest that they are not—as the hon. Member for Hayes and Harlington (John McDonnell) did—is wrong.

The hon. Member for Angus (Mr Weir) claimed that 27% of workers will leave public sector pension schemes as a result of increased contributions. The Government have set out that those earning less than £15,000 will see no contribution increase whatever, and those earning less than £21,000 will see a maximum increase of 1.5 percentage points by 2014-15.

[Nia Griffith]

Does the Minister understand that that £15,000 limit is the full-time equivalent salary? If a person works fewer hours and earns only £8,000, but on a salary that full-time would come out as £16,000, they will pay increased contributions?

[Mr Jones]

Of course, that is indeed the case, as it was under the proposals that the Labour Government put forward. The fact of the matter is that it will not be the case that 27% will leave pension schemes. In fact, the independent Office—