Labour to smash private sector pensions but leave public sector untouched – again | Personal Finance | Finance
While the party treats private sector pensions as a cash cow to be milked to fund its spending projects, public sector pensions are the ultimate sacred cow. As well as being far more generous, they’re also untouchable.
Chancellor Rachel Reeves is currently sizing up our pensions ahead of her autumn Budget tax raid on October 30.
Everything seems to be under consideration, from slashing tax relief on contributions to slapping inheritance tax on unused pots.
Yet the UK’s six million public sector workers have nothing to fear. There is no suggestion Reeves will go anywhere near their pensions.
It’s a familiar story.
The two-tier approach began with former Labour chancellor Gordon Brown, after New Labour’s landslide in 1997.
He scrapped the pension fund tax credit in a move that destroyed the nation’s gold-plated “defined benefit” final salary pensions for good.
It sucked £7billion out of our pensions in the first year alone and more than £250billion within 20 years.
Private sector employers could no longer afford them, so they closed their schemes. It was sheer vandalism by Brown, who never apologised. Millions are far poorer in retirement as a result.
Brown didn’t touch public sector pensions, though.
Civil servants, NHS workers, teachers, soldiers and others still enjoy generous defined benefit pension schemes. More than 80% get a guaranteed lifetime income based on final salary and years worked.
Just 7% of private sector workers do. For the vast majority, pension contributions are invested in the stock market, with no guarantees whatsoever.
Talk about two-tier.
Public sector pensions are largely unfunded (with the honourable exception of local government pensions). There is no pot of saved money to fund payouts. Ultimately, taxpayers foot the bill.
It gets worse (if you’re in the private sector).
Almost half of public sector workers enjoy an employer pension contribution worth at least 20% of pay, according to the Institute for Fiscal Studies.
This costs taxpayers £32.2billion a year.
Just 2% of private sector employees get the same. Most get just 3%.
All this adds up. The average private sector pension is worth just £7,000 a year. Civil servants, teachers and NHS workers get more than £25,000, according to the Taxpayers’ Alliance.
Once again, it’s a two-tier system. And it’s getting worse. The relative generosity of public sector employer pension contributions in the public sector is growing, the IFS said.
Yet who are Starmer and Reeves targeting? The private sector.
At every turn, Labour defends public sector pensions. It was set to revive the pensions lifetime allowance, which slaps a punitive 55% tax on pots worth a little over £1million.
The party called it a tax break for the rich. Until it realised that restoring the allowance would hit public sector workers hardest, notably highly paid NHS doctors.
The policy was quietly dropped.
Last month, chancellor Rachel Reeves waved through inflation-busting pay rises of 5.5% for public sector workers, rising to 22% for junior doctors.
The cost was said to be £9billion but in fact it’s more. Their higher salaries will attract higher employer pension contributions, adding £2.5billion to that bill.
That’s more than Labour will save by scrapping the winter fuel payment.
The UK clearly needs doctors, nurses, teachers and soldiers. Public servants work hard and deserve good pay and pensions.
Labour is now giving them that.
But if it funds this by taxing inferior private sector workplace and personal pension savings, millions will feel cheated.
The two-tier Keir label could stick.
Especially since public sector pensions are far more generous in the first place. And ultimately, unaffordable. Liabilities now total a staggering £2.6trillion, larger than the entire UK economy.
Reeves talks up the UK’s £22billion black hole at every opportunity. Funnily enough, she never mentions the public sector pension bill. Two-tier Labour strikes again.
