Are Government Pensions Unfair on the Younger Generation?

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Angus Hanton and David Kingman


9 May 2012

In this report, IF calls attention to the massive unfunded liabilities for public sector pensions which successive governments have placed on the shoulders of future generations. These are currently worth an eye-watering £1.2 trillion, which is the equivalent of £45,000 per UK household, and no money is being put aside to pay them – in effect, they represent a bill which will have to be paid out of future taxation.

The report argues that recent attempts at reforming public sector pensions have not gone far enough to address this huge burden. Deals between the government and public sector unions have resulted in a situation which protects the status quo for older workers who are currently nearing retirement while ensuring that younger public sector workers will be treated far less generously. They have also preserved a situation in which the vast majority of public sector workers are still able to receive defined-benefit pensions, while most workers in the private sector have been left with far less generous defined-contribution arrangements.

IF argues that more needs to be done to protect the interests of future generations, who have been all but ignored during public sector reforms until now.


Posted on: 9 May, 2012

4 thoughts on “Are Government Pensions Unfair on the Younger Generation?

  1. Steve Gregory

    I am shocked and dismayed by the number of professionals – both public and private secter – of my age group, or older who seem to be sitting on massive guaranteed FS schemes, underwritten by us all – some of them have retired at 55, or before 2011 at 50! (eg Hospital Psychiatrists are still given very generous index-linked pensions at 55). The most infamous example was Fred Goodwin, who manage to sneak under the wire and start drawing his hige pension in his early 50’s, after wrecking RBS.

    As someone who is 55 , with only limited pension prospects, despite putting huge amounts into Money purchase I will have to work into my late 60’s to afford a decent pension at all.

    I feel passionately that we should campaign for a ‘Fred Goodwin Pension Tax’ which would tax more wealthy pensioners who have in effect raided their company schemes over the last 20 – 30 years by retiring early on generous final salary terms, leaving the next generation to work longer to pay for the public sector schemes and exacerbating the hole in most private pension schemes.

    i.e. Why not have a special ‘Pension tax’ that cuts in at 40% for pensions over £25k, then goes up to 60% for pensions over £40k. And if they all flee abroad, then make sure that this tax can be backdated, if they come back to the UK, once they need healthcare !

    The tax could be used to fund better pension provision for the younger workforce and diffuse the increasing ‘inter-generational’ animosity that is emerging.

  2. william

    This is rather a one dimensional view of pensions issues. The issue is not simply inter-generational fairness. Just as the young can feel aggrieved, so can the private sector worker (of any age) paying through tax for a public sector pension that is more generous than his defined contribution scheme pension; the worker (of any age) whose employer provides no pension; or indeed the public sector worker (of any age) who is or was on low pay and whose pension therefore is tiny.

    Moreover although there is an issue of inter-generational fairness, saying so doesnt make more money appear. If you assume that the UK economy will never again grow at the rate it did before 2008 then do or say what you like, future generations will be worse off, whether they are at work or retired, because the wealth that we had or seemed to have is gone.

  3. Steve Kemp-king

    There is only one solution and that is to cap all unfunded pensions. because they are unfunded they are a benefit and this should be treated like all benefits. This would be no more difficult and lead to little if any more unrest than the benefit cap or Gordon Brown’s pension dividend raid which ruined so many funded schemes. it will hurt some people but is the only affordable solution if taxes on the youth of tomorrow are not to reach unsustainable levels which WILL lead to unrest.

  4. Steve Kemp-King

    Public pension schemes are un-funded which means that not only are they in effect a Ponzi scheme but also a benefit like all other unfunded benefits. By this I mean paid out of tax revenues. As they are a benefit they should be capped in the same way and at the same level as other benefits. This would let Reg Prentis’s nurses and dinner ladies off the hook but save billions on these obscene management entitlements.
    After all if a family can live on £25,000 so can a former Civil Service manager!
    pip pip.

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