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[Press Association] The Government’s controversial public sector pension reforms are unlikely to save money in the long term, according to a report by a research group.
The Institute for Fiscal Studies (IFS) said savings from higher pension ages were offset by other elements of pensions becoming more generous, with lower earners generally becoming better off.
Higher earners were likely to lose out, with the move from final salary to career average schemes penalising workers who have big pay increases over time, said the report.
The IFS study also found that the current pay freeze in the public sector and plans to peg future rises to 1% will leave public pay as it was in 2008, before the recession.
The Government’s decision to move indexation of public sector pensions from RPI to the generally lower CPI measure of inflation “substantially” reduces costs and generosity, said the report.
Carl Emmerson, deputy director of the IFS, said: “The reforms to public service pensions implemented by the last Labour government and this Government’s decision to switch from RPI to CPI indexation of pension benefits will in the long run reduce the generosity and therefore the cost of these schemes to the taxpayer.
“But the consequence of the long, drawn-out negotiations over the latest reform appears to be little or no long-term saving to the taxpayer or reduction in generosity, on average, of pensions for public service workers.”
Wenchao Jin, a research economist at the IFS, added: “There is evidence of considerable variation in the estimated public sector pay premium across the regions of the UK. This suggests that, on average, more generous pay awards in, for example, the South East and less generous pay awards in, for example, Wales and Northern Ireland might be appropriate.
“But the analysis also suggests that the regional pattern varies across public sector occupations. So while a shift to centrally set, but regionally varied, pay awards might be appropriate, these should be carefully implemented.”
:: The Association of Teachers and Lecturers, which represents 160,000 teachers, has decided to accept the pension reforms following the results of a poll of members in which 91.6% of respondents voted in favour of the proposals.
Leaders of other unions are discussing further walkouts because of continued opposition to the Government’s reforms.
TUC general secretary Brendan Barber said: “This report examines only one of the three major changes to public sector pensions. As its analysis concedes, the switch to CPI indexation has had a huge impact on future pensions. Similarly the big increase in contributions immediately reduces the cost of public sector pensions by taking a big chunk out of most public servants’ pay.
“The IFS draws its conclusions only from changes in scheme design, where union negotiators – aided by the great support for the TUC’s day of action on November 30 – were able to win concessions. But if you take the package as a whole there can be no doubt that many public sector workers may have to pay more, work longer and get a pension that will not keep up with the proper measure of the cost of living.”
Unite assistant general secretary Gail Cartmail said: “Overall, the majority of public sector workers will pay more, work longer, and get less. The report reinforces what Unite has repeatedly argued on the pensions issue.”
Brian Strutton, national officer of the GMB, said: “Only a week ago the Prime Minister said at Davos that public sector pension reform will save 50% of the costs while now the IFS says the savings are zero.
“What is clear is that future costs are pure guesswork, but what is real is the impact on public sector workers – higher contributions, lower benefits and later retirement.”
The GMB executive will meet next month and is likely to refer the final proposals to members, said Mr Strutton, adding: “The negative impact on them may be why they may well say no and instead opt for further action.”
Dave Prentis, Unison general secretary, said: “Ask any low-paid public sector worker and they’ll tell you how much their families are struggling financially.
“Those on low incomes spend the vast majority of their wages on the bare essentials. A recent Unison survey revealed that many of our members are even cutting back on basics such as food, fuel or clothes for their children.
“It is in everyone’s interest for there to be decent public sector pensions schemes that are sustainable and that people want to join. The alternative is a massive means-tested benefits bill for the taxpayer later on down the line.”
A Treasury spokesman said: “Reforms to public service pensions will save the taxpayer tens of billions of pounds over the next few decades and significantly improve the long-term fiscal sustainability of this country.
“As Lord Hutton has made clear ‘the status quo is untenable’.
“These savings are achieved by a number of changes, including asking people to work longer, pay higher contributions and changing the way pensions keep pace with inflation in retirement. These have to be seen as a whole package and were negotiated as such.
“This analysis only looks at one of these elements and as such is partial and misleading.
“Asking people to work to state pension age will, as the IFS acknowledge, deliver savings to the taxpayer. This is because people people working longer will pay more tax and contributions and receive pensions for less time in retirement.”