Monday, March 21, 2011

BLOG 104


I am prompted to ask this question by an article in last Friday’s Times, headed, “Summer of strikes feared as pensions lose “gold plating””. The headline does not seem to me to have much, if anything, to do with the article, but, as I believe that the Times has gone downhill over the last 20 years, that does not surprise me unduly.

The article is in fact about Lord Hutton’s report on civil service pensions. It explains his proposals and also that George Osborne said that he would consider them carefully. That seems to me to be an advance on Chancellor Brown, who always seemed to accept reports he had commissioned without question, as though doing so relieved him of the need to make difficult decisions.

Are Lord Hutton’s recommendations fair? I don’t have a clue. I suspect that no-one else, including Lord Hutton and George Osborne, has a clue either. That is because, in my view, he was asked the wrong question. He was asked to “conduct a fundamental structural review of public service pension provision and to make recommendations … that are sustainable and affordable in the long term, fair to both the public service workforce and the taxpayer”. The question that I think he should have been asked is to consider whether the remuneration package of public sector workers is fair in comparison with people doing comparable jobs in the private sector. I do not see how fairness can be achieved without making such a comparison. To compare pension provision for public service workers with what is sustainable and affordable to the taxpayer is like comparing apples and pears. That is in effect saying that if the country cannot afford to treat civil servants fairly should there be some sort of compromise so both sides suffer a degree of unfairness.

Which brings me to remuneration packages. The remuneration package is the price that an employer is prepared to pay to obtain the services of an employee. In many cases the package will simply consist of a cash salary. In others it will be made up of several elements. For example, there may be a salary, a pension contribution, access to a subsidised canteen, health insurance, a round sum expense allowance, and a company car. It would surely be ridiculous in such a case to look solely at the cash element of the package and ignore the rest. Yet that is what the government – and the press – seem to be doing with civil servants. The Times tells me that a 52 year old part-time cook supervisor in Wolverhampton is “earning about £10,000 a year and expects to retire on about £3,000 a year”. This is incorrect. She is earning a remuneration package consisting of (at a minimum) salary and the provision of the right to a pension. I think that the cost to a private sector employer of providing her with a pension of £3,000 p.a. is likely to be in the region of £4,000 p.a., in which case she actually has a remuneration package of £14,000, not £10,000.

However we cannot assess whether this is fair as we have to guess at the package because the government, for all its talk of transparency, does not disclose the value of the lady’s remuneration package – the pension element needs to be calculated actuarially and I suspect the she may also get free meals while at work. What is clear is that it is not possible to compare the £10,000 cash element of her remuneration package with the cash element of the remuneration package paid by, say, Serco to someone doing a similar job, as we do not know the value of the other elements of the remuneration package of either, and the mix of benefits is unlikely to be identical.

I am puzzled how Lord Hutton can seriously talk about fairness in the context of civil service pensions without putting the pension into the context of the worker’s remuneration package.



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