George Osborne's Plan B

[Rolfe]

It's not so much a "too bad for them" statement, as a "they made their bed, and if they're not happy about lying in it, take action to fix it by targetting those that will feel it the least".

They made their bed - apparently by finding work in a sector that can't demand to squeeze the taxpayer for everything it wants.

Of course we need public sector workers. But we also need private sector workers. A country can't survive economically on a workforce enirely composed of teachers and nurses. However, the way you're portraying it, a public sector job becomes a feather bed, where retired employees have the right to demand that everyone else make up the pension they want.

It's a recipe for a totalitarian state, where the privileged work for the state, and are supported by everyone else, while those not fortunate enough to secure such a plum post just have to struggle as best they can.

No, not liking the argument.

Rolfe.

 

[stokes234]

They made their bed - apparently by finding work in a sector that can't demand to squeeze the taxpayer for everything it wants.

They found work in a sector that can't demand to squeeze the taxpayer, but it can demand to "squeeze" it's own directors. It just chose not to. As I said before, if this gets done and doesn't cover the shortfall, i'm in favour of reducing public sector pensions, but until then i'm not agreeing with it. It just seems to me like the lazy way out - we can't take on our own bosses who are earning millions because it's too hard and too risky, so we'll target the old people earning £6k a year.

Of course we need public sector workers. But we also need private sector workers. A country can't survive economically on a workforce enirely composed of teachers and nurses. However, the way you're portraying it, a public sector job becomes a feather bed, where retired employees have the right to demand that everyone else make up the pension they want.

I don't see them as having the right to demand everyone else makes up the pension they want, but I do see them having the right to demand the pension they were already promised years ago when they fought for them, at least until the rich have paid their dues.

It's a recipe for a totalitarian state, where the privileged work for the state, and are supported by everyone else, while those not fortunate enough to secure such a plum post just have to struggle as best they can.

No, not liking the argument.

Rolfe.

The "privileged" work for the state? Go find me a top 100 rich list for britain, and please, please point out to me all the teachers, all the doctors, all the council workers who have made this list. Or perhaps we have different definitions of who the "privileged" are.

 

[Rolfe]

That is what special interests do. As one would expect them to.

I suppose that's human nature. But the question of where the money is going to come from is hardly an esoteric one, or one that people are unfamiliar with in their private lives.

Suppose parents have long promised their little girl a pony for her tenth birthday. It was an honest promise, based on the reasonable expectation that the family would be able to afford the pony when that birthday comes round. But before that date, through no fault of his own, the father lost his job and the family income became much less than it had been.

Maybe the little girl brandishes a card signed by her father, promising her that pony on that birthday. She says she's entitled. But where is the money coming from? Are the parents and the other children to live on bread and water so the girl can have that pony?

It's a bit less obvious than that when you're dealing with a country rather than a family, but it's the same principle. Insisting that Rich Uncle Joe shoudl be made to pay for the pony doesn't make it any more sensible.

Rolfe.

 

[stokes234]

Or means-testing the state pension, and dropping the universality of fuel allowances and other things, thus easing the burden on less wealthy pensioners.

Universal welfare is not progressive. Increasing the progressiveness of taxation to compensate for that is probably a lot less efficient than just making it progressive in the first place.

It might be less efficient, but you also have to consider the cost of means-testing itself.

 

[stokes234]

Maybe the little girl brandishes a card signed by her father, promising her that pony on that birthday. She says she's entitled. But where is the money coming from? Are the parents and the other children to live on bread and water so the girl can have that pony?

It's a bit less obvious than that when you're dealing with a country rather than a family, but it's the same principle. Insisting that Rich Uncle Joe shoudl be made to pay for the pony doesn't make it any more sensible.

Rolfe.

It's not quite a detailed enough analogy, because the little girl didn't work for her potential pony, and rich uncle joe hasn't gained from the work she did, nor is her pony being paid for by people who work for rich uncle joe who joe has decided don't need to be paid particularly much because that would get in the way of his new yacht fund, etc etc.

 

[Rolfe]

They found work in a sector that can't demand to squeeze the taxpayer, but it can demand to "squeeze" it's own directors. It just chose not to. As I said before, if this gets done and doesn't cover the shortfall, i'm in favour of reducing public sector pensions, but until then i'm not agreeing with it. It just seems to me like the lazy way out - we can't take on our own bosses who are earning millions because it's too hard and too risky, so we'll target the old people earning £6k a year.

You seem to have this strange vision of the public sector was being inhabited by huge companies with infinite resources and bloated directors. It doesn't work like that. Most people don't have bosses who are earning millions. Most people have bosses who are struggling to keep the small businesses they founded afloat in perilous waters. Most of these bosses are not significantly better off than their employees.

You are suggesting that everyone should be able to demand something for nothing, access to money that simply isn't there. You're living in a fantasy land.

I don't see them as having the right to demand everyone else makes up the pension they want, but I do see them having the right to demand the pension they were already promised years ago when they fought for them, at least until the rich have paid their dues.

Yes, and the little girl has the right to demand that pony she was promised, too.

This is all boiling down to a "super-tax the rich" argument. That's a much wider issue than pensions. It's an issue for all public services, and for national prosperity. I don't necessarily agree with the view that the super-rich have to be pandered to lest they move to Monaco, but we have the government we have. I didn't vote for it. Demanding that the Con-Dem coalition specifically taps the super-rich to fund your pension isn't even in remote connection with reality.

The "privileged" work for the state? Go find me a top 100 rich list for britain, and please, please point out to me all the teachers, all the doctors, all the council workers who have made this list. Or perhaps we have different definitions of who the "privileged" are.

There you go again, obsessing about the super-rich. Go back and work through the argument again. You were suggesting that those who worked for the state should be able to squeeze the taxpayer for quite luxurious pension provision, while those who worked for private employers can't.

That does make public employees the privileged elite, if that's how it works out. The smart kid will look for that route of employment, and forget any idea of setting up in business or even working in manufacturing. Oh yes, maybe a few will make the rich list, but the majority, the ordinary engineers and machine operators and sales staff, they'll have to keep working till they die, or exist on a pittance, while the public sector retirees keep their nice houses and their three holidays a year.

Rolfe.

 

[Francesca R]

It's a recipe for a totalitarian state, where the privileged work for the state, and are supported by everyone else, while those not fortunate enough to secure such a plum post just have to struggle as best they can.

That seems to over-egg the situation to me. Of course public sector unions are likely to want to shift the problem onto someone else, in their members' interests. If they were able to obstruct the government sufficiently, French-style, and the government retreated, that would be rather unfortunate (and as I mentioned earlier, I regard the concessions of protecting people who are less than ten years from retirement as an inequitable watering-down of the proposal), but it would not be a totalitarian state.

The principal issue IMO in the public pension funding morass is the pointed ignorance of inter-generational unfairness and age-cohort asymmetry, and the unhelpfulful substitution of that with a private vs public kind-of "reverse class war" story (where the private sector is playing the role of the impoverished class).

There are a great many people who purport to be liberal and who are morally blind to asymmetries in race, gender, sexual preference, age etc, yet who give no thought to the burden imposed on the next generation (poor and rich) by legacy agreements (that the next generation were not party to) which effectively mortgage the future.

 

[Rolfe]

It's not quite a detailed enough analogy, because the little girl didn't work for her potential pony,

That's an excellent point. How can you show that the public sector employees produced so much in their working lives that they can justify pensions equivalent to having £600,000 invested? That's what is being demanded, and I'm struggling to see how the arithmetic works out.

I've worked hard, and produced a lot, in my working life. I haven't lived the high life, and I've tried to put as much away as I reasonably could for my pension. I have a pension fund of about £300,000. I don't see how I could possibly have produced enough to have made that £600,000. But that's what's being demanded by the public sector strikers, for themselves.

and rich uncle joe hasn't gained from the work she did, nor is her pony being paid for by people who work for rich uncle joe who joe has decided don't need to be paid particularly much because that would get in the way of his new yacht fund, etc etc.

And yes, I invented rich uncle Joe, but the fact is he's a figment of your and my imagination. In reality, if the girl somehow forces Daddy to buy her that pony, the entire family will suffer.

You have to stop imagining that the "private sector" is all hugely profitable multi-billion-pound outfits. It isn't. It's small firms with a few employees, trying to stay profitable while contributing to the growth of the economy. If you get your way, only a madman would either set up such a firm, or work for it, if there was any possibility of gaining a feather-bedded public sector job.

Rolfe.

 

[Francesca R]

I suppose that's human nature. But the question of where the money is going to come from is hardly an esoteric one, or one that people are unfamiliar with in their private lives.

Of course it isn't. It does, however, require the application of an "encompassing interest" and it cannot be entrusted to special interest groups like public sector trades unions, who themselves would agree that they act in their members' interest first and foremost.

Hence the government of the day, if/when backed by society's preference and not unduly hijacked by special interest lobbies, should take the decision of where the money should come from. Apparently they would like to take the money from legacy benefit promises. I think that a plurality of the electorate agrees with that.

(Of course, many people would believe that the tory/libdem government is beholden to different special interests instead, and that is probably correct, but I think we can agree that they are not politically captured by trade unions, which in this debate, is surely a good thing)

 

[Rolfe]

That seems to over-egg the situation to me.

Yes indeed. I was exaggerating for effect, partly. And also articulating a certain distaste I feel about the way stokes is arguing his point.

There are a great many people who purport to be liberal and who are morally blind to asymmetries in race, gender, sexual preference, age etc, yet who give no thought to the burden imposed on the next generation (poor and rich) by legacy agreements (that the next generation were not party to) which effectively mortgage the future.

An excellent point, well made.

Rolfe.

 

[Francesca R]

It might be less efficient, but you also have to consider the cost of means-testing itself.

So if the cost outweighs the saving it is pareto-inferior to means-test. If it doesn't, it is superior. Glad we agree.

I suspect there are cheap enough ways to means test, imperfect as they may be.

 

[Francesca R]

An excellent point, well made.

Inter-generational inequity has affected private-sector retirement schemes as well, and continues to do so. The stylised change that has happened to those is that defined-benefit systems have been closed to new members, and the assets within them increased and/or invested in "risk free" real-rate bonds (Boots plc was the first one to do the latter more than a decade ago). UK companies have been compelled to address funding shortfalls in ways that the public sector never has been due to an accounting standard called FRS17/IAS19 which was introduced at the time of the Boots switch and made law in later Finance Acts. FRS17 requires a company to reflect all pension scheme assets and liabilities on its balance sheet, which means that companies cannot run up the liabilities side without this triggering insolvency. Likewise they can not forever divert ever larger corporate earnings into fund contributions without also eventually going out of business.

They (private sector business) have therefore been required to reform their retirement systems in ways that the public sector has not. This much is not an issue of the relative power of workers over management.

The ethical problem remains however, in that in almost all cases, the overriding logic to private-sector pension scheme restructuring has been to protect the promises made to existing scheme members (which hugely favours yesterday's workers at the company) at all costs. Merely closing DB schemes to new entrants, in an effort to keep companies solvent/competitive, can be seen as treating the beneficiaries of legacy erroneous over-generosity as the only stakeholders that matter, ignoring current and future workers, not to mention shareholders.

This asymmetry is missed by the vast majority of regulators, stakeholders and public. I don't know why this is the case, since to me it violates important norms of distributional justice.

 

[Skepticemea]

Seems to be a growing concensus on here that public sector pensions should be cut across because although the contributions "only" cost the country 1.9% of GDP, public sector pensions are too expensive and anyone arguing against that is selfish.

No *****, Mycroft!

I wonder just how affordable the unilaterally amended schemes will be once 750k contributors are made redundant?

 

[Francesca R]

PS: Related topic to my post above: "Are pensions going to destroy the west?"

 

[Giz]

Seems to be a growing concensus on here that public sector pensions should be cut across because although the contributions "only" cost the country 1.9% of GDP, public sector pensions are too expensive and anyone arguing against that is selfish.

No *****, Mycroft!

Oh well, if it's such a small amount then why don't you just have a voluntary collection from all the bleeding hearts? You'd collect a small amount like that in no time!


People got promised too much. Now their future benefit accrual is being cut back to affordable levels. They should be patting themselves on the back for having made out like bandits in the past, not trying to squeeze the rest of the country until the pips squeak. Very un-public spirited these public servants.

 

[Darat]

Oh well, if it's such a small amount then why don't you just have a voluntary collection from all the bleeding hearts? You'd collect a small amount like that in no time!


People got promised too much. Now their future benefit accrual is being cut back to affordable levels. They should be patting themselves on the back for having made out like bandits in the past, not trying to squeeze the rest of the country until the pips squeak. Very un-public spirited these public servants.

Er... you do realise that we are talking about a future benefit?

 

[Skepticemea]

Oh well, if it's such a small amount then why don't you just have a voluntary collection from all the bleeding hearts? You'd collect a small amount like that in no time!


People got promised too much. Now their future benefit accrual is being cut back to affordable levels. They should be patting themselves on the back for having made out like bandits in the past, not trying to squeeze the rest of the country until the pips squeak. Very un-public spirited these public servants.

No, you're right, they're "bandits", not people who were lied to and are having their terms and conditions of employment unilaterally torn up.

They should be patting themselves on the back for having made out like bandits in the past, not trying to squeeze the rest of the country until the pips squeak.

How can you believe that? It's factually untrue as they are not asking for more, just what they are entitled to under the terms and conditions of employment.

 

[Francesca R]

It is only 1.9% of GDP and is predicted to fall over time.

As stated by others, the entire public pension system costs 1.9% of our GDP.

the contributions "only" cost the country 1.9% of GDP

It's worth pointing out that the famous "Hutton graph" that shows the annual cost of public pensions stabilising and falling as a share of national income (Chart 1.B page 23) pre-assumes that Hutton's 27 recommendations are implemented.

Lord Hutton said the figures “assume we have successfully implemented the reforms” that he recommended. “The fundamental mistake the trades unions are making is that the chart assumes that the reforms have taken place,” he told the Financial Times. “They are the post reform costs.”​

FT 14 Sept

Also, the chart still measures the evolution of a liability stream against long-range assumptions that that the liability has little capacity to adapt itself to, meaning that if the assumptions experience adverse surprises, the public cost can be thrown off (upwards) significantly. And if 50-year projections had been accurate thus far, the issue would not have arisen in the first place.

Labour needs to grow some other balls and take a distinct stance on matters of policy rather than following behind the Tories and LibDems bleating "We'd be a bit better than they are, honest."

Much, and perhaps most of the stabilisation of pension costs is due to Labour government reforms in 2005-08 (not all of which have taken effect yet--such as "cap and share [PDF]" which transfers some longevity risk to employees). I haven't seen a split of how much will have been Labour-driven and how much ConDem driven but I suspect that, to date, Labour have been "better than they are" in respect of containing costs.

 

[Skepticemea]

Anyone see PMQs?

581,000 more private sector jobs - while 336,000 public sector jobs have gone

I make that a surplus of jobs of 145,000 yet unemployment has gone up by 128,000. Is the PM using different criteria than the ONS?

 

[Skepticemea]

It's worth pointing out that the famous "Hutton graph" that shows the annual cost of public pensions stabilising and falling as a share of national income (Chart 1.B page 23) pre-assumes that Hutton's 27 recommendations are implemented.


Also, the chart still measures the evolution of a liability stream against long-range assumptions that that the liability has little capacity to adapt itself to, meaning that if the assumptions experience adverse surprises, the public cost can be thrown off (upwards) significantly. And if 50-year projections had been accurate thus far, the issue would not have arisen in the first place.

Much, and perhaps most of the stabilisation of pension costs is due to Labour government reforms in 2005-08 (not all of which have taken effect yet--such as "cap and share [PDF]" which transfers some longevity risk to employees). I haven't seen a split of how much will have been Labour-driven and how much ConDem driven but I suspect that, to date, Labour have been "better than they are" in respect of containing costs.

Thanks for point that out, Francesca but the Treasury itself admitted that these figures are based on intelligent guesses by Hutton based on economic performance estimates and that the cost to the taxpayer is actually falling without Lord Hutton's recommendations being implemented? The changes made in 2007/8 by the Labour Party (ptui) have been credited as instrumental in this fall and Conservative (ptui ptui) claims to the contrary are incorrect:

http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/833/833.pdf