Public Sector Pension Heist
Hi sharpend,
I may be able to throw some light upon this for you.
I am a civvy and for very many years was a local government officer. Most public sector pensions always were, and still are, non-contributory but do have a proper pension fund that employers pay into on their employees' behalf. One or two schemes, such as the fire brigade and teaching profession have no pension fund at all and their pensions are paid directly out of income. But ours in the Local Government Service were always contributory. So from the age of 18 I paid into my pension every month and my employer paid in an equal amount on my behalf - fifty fifty.
Since the 1970s and until my retirement in 2001 I worked on the expectation that when I finally retired my pension would be index linked at the rate of the Retail Prices Index (RPI).
However, following the financial meltdown in 2008 (i.e. 7 years after I had retired) all public sector pensions ceased to be index linked to RPI and became indexed instead to the much less advantageous Consumer Price Index (CPI). (You will find a description of RPI and CPI on Wikipedia).
This was done by government diktat and without consultation on the grounds that there must surely now be a gap in the money available to support public sector pensioners which the nation could no longer afford. (Although it seems the nation could afford 0.7% of GDP in foreign aid).
In the case of the non-contributory pensions that was probably true, and even more so of the directly funded schemes, such as those of the fire brigades and teaching profession, where there was no pension fund and the pensions were being paid directly out of revenue.
The public sector trade unions, (notably UNISON in our case,) protested that only three years earlier (i.e. immediately after the financial crisis) our Local Government contributory pension scheme had been revised, in negotiation with the employers, to ensure that the fund would continue to be strong enough to cover all anticipated demands from retiring staff.
Needless to say, the government refused to budge and the trade unions took the government first to the domestic courts and, being unsuccessful there, on to the European Court of Justice.
However the ECJ found in favour of the government on grounds that under the regulations of public sector pensions it was up to the Secretary of State to decide at what rate pensions should be indexed.
Personally, I feel that our Local Governent Pension, by reason of having a sound pension fund and being fully contributory, should have been treated less harshly than those of professions with non-contributory schemes or whose pensions are paid out of revenue; but that's they way it went.
Best regards,
BP.