There are many ways to skin a cat and there are many ways to shut down our pension system, if you wanted to avoid industrial strife with trade unions then the most simple way of closing them down would be to price us out of the system overall. There is mounting evidence that this maybe the strategy of choice for the Con Dems.
A combination of wage suppression, job losses and pension contribution increases will see many members quit their scheme as an article in today’s FT highlights:
http://www.ft.com/cms/s/0/27af7540-8c82-11e0-883f-00144feab49a.html#axzz1O6lOJaXo
John Wright, a partner at Hymans Robertson, the pension consultants who advised Lord Hutton over his review of public service pensions, said “The Treasury is right to say it will be economically rational to stay in the schemes, but people ... do not act rationally,” he said. With most staff facing a pay freeze and with inflation running at 4 per cent or 5 per cent, even a phased increase amounted to a cut in take-home pay and opting out of pension saving was one way to counter that.
There was, he said, evidence that the squeeze on take-home pay was leading to higher opt-out rates in local government, even ahead of the contribution increase. “And if opt-out rates are high, that will be bad news for members who will lose benefits, and bad news for the schemes and for the taxpayer as fewer people paying in will increase the gap between money coming in and amounts being paid out.”
There will come a critical point for the NHSPS where the government will have to find additional money to fund pensions because there aren’t enough people paying in. In the end the tax payer will be the cash source of last resort. So contrary to the government’s plan to reduce costs on the taxpayer they will have to pick up the bill in the short term.
In the LGPS the 101 funds will also go cash negative, where there is not enough cash to pay pensions. This will lead to a sale of assets and a change in investment strategy that will also contribute to a further drop in income. Once again the taxpayer will have to pick up the bill as the obligation at present on councils managing the LGPS funds is to make sure they have enough in their pots to pay out pensions.
It is like a death spiral every measure taken weakens the patient until the actions become terminal. The one action that neither the unions or the government can control is the economic decision making of millions of public sector workers who faced with declining living standards today cannot afford to consider the long term tomorrow.
Rather than the big bang closure of pension schemes that private sector employers have done we have the possibility of the system running out of our hands like water.
