Pension disparity ‘a source of inequality’
On average public sector workers receive a pension three times larger than those in the private sector. Here partner and actuary at Quantum Advisory, Stuart Price, argues why this can’t go on much longer
THE TaxPayers’ Alliance recently revealed that a 25 year old earning the national average wage could retire at 68 with an annual public pension of £17,563, but just £6,412 per year if they had a private pension.
The disparity between the figures is quite shocking and perhaps a source of inequality among UK workers — particularly when public sector workers are seen to be paid more than the private sector also.
However, I don’t feel the pension gap will last for much longer as the cost to run the schemes is not sustainable.
Currently, most public pension schemes are defined benefit (DB) which offer a far superior rate of return than their defined contribution (DC) counterparts – hence the disparity. DB schemes are scarcely available to private workers now due to increasing life expectancy, low interest rates and previous scheme deficits pushing up the running costs, making them simply unaffordable.
This doesn’t affect the majority of public sector schemes as, like the State Pension, they are mostly unfunded - or pay as you go – schemes. Taxes currently pay the pensions for those in receipt of pensions from these schemes, and the next generation’s taxes will pay for those in the workforce now when they retire. That’s if the current system continues, which I can’t see happening.
Already, some public sector schemes, including the Universities Superannuation Scheme (USS), are already looking into ways to drastically cut back the pension benefits they offer.
Only time will tell, but in my opinion public sector schemes will eventually follow the path of the private sector, but maybe not quite yet.
Quantum Advisory, which has offices in Cardiff, London, Amersham, Bristol and Birmingham, was established in 2000
It provides pension and employee benefits services to employers, scheme trustees and members.