As unemployment soars and pension funds plummet, there is one way of ensuring
you don’t end up shivering under a blanket and living on cat food when you
reach 65: get a government job – and quick.
Ros Altmann, Tony Blair’s former pensions adviser, now an independent pensions
consultant who has spent years campaigning for those who have been let down
by private pensions, believes that people working in the public sector will
be lording it over people in the private sector when retirement day arrives.
“Those who have a public-sector pension will be the new aristocracy,” she
said. “If you are in the public sector and if you have a job and a pension,
then do your best to keep it – understand the true value of it.
“If you are just starting out in a career at the moment, as things stand you
will be better off at the end of your working life if you are in the public
sector,” she said. “A civil servant will be far better off at retirement
than a bank manager or a company director.”
Get in quick, though, as these amazing offers cannot go on indefinitely. “I
honestly don’t think it will last,” said Altmann, adding that such perks are
not sustainable. “They have five years – max. I don’t want to say whether
this is right or wrong but what is absolutely wrong is that the government
is hiding the true cost and is not budgeting for it.”
The generosity of the public-sector schemes, which are not linked to the stock
market but paid for out of taxes, will be their downfall, she said. Altmann
believes that, financially and politically, the government cannot continue
to allow the gulf between public-sector and private-sector pensions to widen.
“If the government has a problem in funding expenditure in general, it can
alter the basic state pension tomorrow, but it cannot touch the
public-sector pension. It’s goldplated – crashproof, bombproof.
“Some people liken the present situation to apartheid, but it’s really an
aristocracy – they will get richer while others get poorer,” she said.
Here is a tale of two pensions to illustrate the growing gulf.
Private sector
NOBODY is more aware of the problem than Andrew Parr, a recently retired
systems engineer who paid into his company’s pension scheme for 21 years,
only to see it disappear before his eyes when his company went bust .
It has taken him six years to claw back two-thirds of it but the irony is that
if inflation rises sharply he will end up falling back on the tiny
public-sector pension he has from the three years he spent working at what
was the British Steel Corporation in the late 1970s.
Parr worked for state-owned British Steel between 1979 and 1982, but in that
time he earned a £5,000-a-year public-sector pension, which could, since it
goes up with inflation, eventually overtake the private-sector pension he
paid into for 21 years. The latter was cruelly reduced when ASW, the steel
company he worked for, went bust and will never rise above £10,800 a year,
whatever happens to inflation.
Parr, now 64, had hoped to retire when he was 62, but when ASW collapsed in
2002 he was left without a job and with a smaller than expected pension.
He spent 21 years designing the computer systems for ASW’s steelworks at
Sheerness in Kent. He was earning £35,500 a year when he lost his job.
Having contributed to a pension all his working life, Parr was expecting an
income of £15,500 a year when he retired at 62. Instead, despite government
intervention, and six years of campaigning by Altmann and the Pensions
Action Group, he now receives only £10,800 a year.
However, if he lives to his late eighties, his public-sector British Steel
pension, where he worked for just three years, is likely to outstrip his
private-sector pension because it rises with inflation each year.
“It’s a very unjust situation,” said Parr. “We always used to say that in the
civil service you got a low salary but a high pension, and the high pension
was compensation for the low salary, but now it seems that public-sector
salaries are higher than private-sector ones and they don’t have to worry
about being profitable.
“I resent the fact that I have had six years of worry and frustration and
hassle and despair. In the early days I really was in the depths of
depression because I had lost my job and my pension and still had to pay the
mortgage.
“I was fortunate because I found a new job fairly quickly, but there are
plenty of people who are in their late fifties who lost their jobs and are
now relying on benefits simply because their pension pots were linked to the
value of the stock market. We will have to be careful with money, but we are
fortunate because my wife is a retired teacher – we have friends who relied
entirely on the ASW pension and are much worse off than we are.”
Public sector
IN CONTRAST, Metropolitan Police Acting Inspector Tony Cox, 48, can look
forward to a guaranteed final-salary pension of £27,330 a year in two years.
Alternatively, he can collect a £130,000 lump sum and retire on £20,500 a
year. He could even join the “30 plus scheme” and carry on working at almost
the same salary.
“I could retire on Friday and rejoin on Monday,” said Cox, though it would
mean working in administration. In that situation, he said, he would be
better off than ever – collecting a pension as well as a salary.
“I am in a very fortunate position,” said Cox, who joined the police in 1980
when he was 19, though the pension entitle-ments were the last thing he
considered at the time.
“I was working in a wood yard in Somerset and I joined the police to come to
London. It was wonderful because instead of working six days a week in the
wood yard I was at Hendon police college just five days a week for the same
money (about £300 a month). I had my accommodation paid for and in my time
off I was having a great time in London.
“The pension security wasn’t something I thought about at the time, but it is
something that people who are joining the police today are much more aware
of.”
In some ways the high pension could be seen as a reward for 30 years of shift
work and dealing with some of the most difficult people in the world, said
Cox – he is not referring to his colleagues – but added that the reason he
joined the police force was for the great career it has given him.
“I do feel sorry for people who have contributed for years to a pension and
then lost out. A lot of the private funds are now in jeopardy and I do feel
angry on behalf of those people.
“It’s a bit of a lottery for people with a private pension, but for those in
the public sector it’s a guarantee.”
State workers do best
- Their pensions are linked to their final salary – not tied to the whims
of the stock market
- They are linked to inflation – so if inflation goes up by 11% so does
their pension
- They are gold-standard – no matter what happens to the stock market
they retain their value and have to be paid
- They have always been considered a perk for employees in traditionally lower
paid jobs Salaries for public-sector staff such as civil servants, NHS staff
and the emergency services have never been better
