Are you paying for other people’s pensions?

1st June 2011

The issue has led unions to threaten strikes and even warn of hundreds of thousands of public sector employees opting out of their pensions and by doing so causing an even bigger welfare crisis when they retire and have to rely on state benefits.

Whatever the rights and wrongs, it is clear that a combination of increased life expectancy and lower returns on investments is putting pressure on the system. The Daily Mail says that it is taxpayers picking up the tap in a very big way as the report below shows. It suggests that around a quarter of council tax bills are devoted to paying the pensions and future pensions of council employees.

This is the key passage –

"In 2009-10 the employer contribution paid by councils went up by £359million – a rise of 6.6 per cent, well ahead of inflation – to reach £5.759billion. The figure is equivalent to well over a quarter of all council tax payments and amounts to 51 per cent of the £11.163bn cost of town hall pensions."

The Mail argues the percentage contributed has quadrupled since 1997. It also says a deal to end early retirement now sees councils pay out a huge number of lump sums to employees as well.  

On the Mail comment boards, Agent 007, now apparently living in Gloucestershire, is typical.

He writes: "I'm sorry, when the money runs out so does the pension. Public sector workers need to join the real world. Why should I keep funding them?" He adds the designation – private sector tax payer.

Mindful Money is not just about bringing you one side of the debate. Here is the TUC view of the pension situation which it says explodes many myths about public sector pensions and placed in a handy pdf.

This row takes place in the context of a huge debate surrounding recommendations for reforming public pensions proposed by John Hutton, a former Labour cabinet minister, who reviewed public sector pensions for the Coalition government. This has been broadly criticised by unions, but it has also been attacked from another side. For example council employers argue here, in the Local Government Chronicle, that even Hutton reforms are too expensive.

But no matter where you stand, you should probably check on your pension entitlements. If your pension is due to fall or if you are being asked to contribute more, you may wish to try and do something about it and this Telegraph article from March could prove useful.

And here Thisismoney has a guide if you are worried about your defined benefit pension.

Finally if you are in a private sector pension, this site is one of many to provide some helpful information.

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