Pensions: will the poorest paid be protected

 

Danny Alexander claims yes. We examine whether this stands up.

Mr Alexander, the Chief Secretary to the Treasury stated in a speech on the 17 June to the Institute for Public Policy Research:

We are proposing in particular that the lowest earners will face the least, or even zero increase in their contributions. Our proposal would not increase contributions at all for those earning less than £15,000 a year, and we propose a limit of 1.5 percentage points increase for those earning up to £18,000. This would be progressive and fair. It would help to ensure that the increase in contributions will not cause people to opt out.

In DfT only a handful of people earn less than £15,000 (35 people) but 4,765 FTE staff (26% of the departmental FTE staffing) earn between £18,000 and £15,000 on an FTE basis.

Now we have to explain these terms. FTE stands for Full Time Equivalent e.g. 2 people working half a week each are classified as 1 FTE; three people working a 1/3rd of the week each would be classified as 1 FTE etc. Also when the government talks of people earning less than £15K being exempted from an increase in contributions they mean £15K on an FTE basis. So if you worked part time for half a week and your “real” wage for this part time work is £10K then for the government your FTE wage would be £20K i.e. they calculate your wage as though you worked full time.

Back to the plot. For the 4,765 FTE staff earning between £18,000 and £15,000 on an FTE basis they will see an increase in contributions of 1.5%; so they are not protected.

The Whitehall studies, a long term health study of civil servants found that generally the lower the grade (pay band) the higher the sick rate and higher the death rate.

In his speech Mr Alexander stated:

For that reason, we are proposing to link the Normal Pension Age to the State Pension Age. That is, we propose linking the age you can draw your occupational pension, to the age that you can draw your State pension. And the two would continue to track each other in the future as we as a society benefit from greater longevity.
Currently the state pension age for men is 65 and for women it is depends on your date of birth. If you go here there is a calculator to work out your state pension retirement age.

We don’t know whether Mr Alexander is proposing that male civil servants will have a civil service pension age of 65 and women a lesser one – we shall see – but increases in pension age will mean, for financial reasons, that some or many of the 4,765 FTE staff members will have to work longer. Of course they will, generally speaking, have a lower life expectancy than those better paid than them. Therefore, again speaking in general terms, they will enjoy fewer years in retirement than say the senior civil service. In other words they benefit less from the “greater longevity” Mr Alexander talks of.

Thus in reply to the claim that the poorest paid will be protected; in DfT that will not be the case. Staff will see an increase in contributions and, generally, will enjoy have less years in retirement to get back the monies they paid in through contributions.

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