Public sector fight for early retirement

The Treasury faces strong resistance to its civil-service pension cuts, says David Prosser

More than a million public sector workers are preparing to go on strike on Wednesday over cuts to their occupational pensions. Dustmen, dinner ladies and Jobcentre staff will be joined in the walk-out by the country's most senior civil servants, including Whitehall administrators, tax inspectors and lawyers. Teachers could also join the action.

But despite the fury, the Treasury insists the pension cuts it plans will simply bring public servants' pensions into line with the private sector.

A joint report with the Department for Work and Pensions, published last year, warned that the public sector pension bill would have to be reduced to cope with rising average life expectancies - the fact that pensions must now be paid for longer than ever before.

Under the plans, the Government will raise the public sector retirement age from 60 to 65 for new workers from 2006, and for existing workers from April 2013.

In addition, the final salary scheme currently on offer, where pensions are based on what staff earned just before retirement, will be replaced with a scheme based on what the employee earned on average during the whole of his or her career.

This is likely to produce lower pensions because benefits will be based on workers' earnings throughout their careers, rather than the final few high-earning years.

Other changes include raising the minimum early retirement age from 50 to 55, a higher contribution rate for pension scheme members, and penalties for those who retire early.

The reforms are controversial, but pension experts say they only mirror what has already happened in the private sector. Deborah Cooper, a senior research actuary at pension consultant Mercer Human Resources, says: "This is a question of the public sector playing catch-up, though it is probably fair to say that even after these changes, public sector pensions will remain more generous in some respects." Cooper says that at least public sector schemes will still offer pensions guaranteed to be a set proportion of pay. Many private sector workers have been switched into money purchase schemes, where their pensions now depend on stock market returns.

However, the move to raise retirement ages is more controversial, she warns. "This has been less common in the private sector," Cooper admits. "It's a difficult change to make, because it's really obvious, whereas people don't always understand what a change in pension scheme design really means to their benefits."

Trades unions insist public sector workers are being singled out unfairly.

Dave Prentis, the general secretary of Unison, the biggest public sector union, says: "Workers in the public sector don't do the job for the money; they're low-paid by contrast to the private sector. They've been promised a decent pension in return for putting up with that low pay."

Unison also argues that the suggestion that public sector workers are currently retiring on super-generous pensions is a myth. The average pension is today just £3,800 a year, the union points out.

But Joanne Segars, the head of pensions at the Association of British Insurers, says people in both public and private sector jobs are having to come to terms with working for longer. "People are living longer than ever before and they are coming to understand that besides saving more, they will need to work for longer if they are to have a decent income throughout retirement," she says.

Ironically, one obstacle that might prevent many workers staying in their jobs for longer is a lack of basic employment rights for older staff. Currently, it is legal for employers to discriminate against older workers, even sacking them without offering redundancy packages, if they are above the company's retirement age.

To add insult to injury, ministers have so far refused to implement new anti-age discrimination laws, which must be introduced before October 2006 in order to comply with European Union regulations.

In December, the Department of Trade and Industry (DTI) announced it would not make it illegal for employers to force workers to retire at a certain age. DTI boss Patricia Hewitt said employers could continue to require workers to retire at 65. They will merely be required to "consider" requests from staff who want to carry on working.

'We accepted lower pay for a decent pension'

Jodie Philpotts is one of many public servants determined to strike over pension rights next week. Although she is only 26, Jodie is furious about proposed changes to her pension scheme.

"I started working in local government when I was 20 and joined the pension fund almost straight away," says Jodie, who now works as a communications assistant to the chief executive of Wolverhampton City Council.

"Public sector workers have always accepted lower pay and the lack of benefits such as a bonus and company car in return for a decent pension and a job for life," she says. "Now neither of those are going to be on offer."

Jodie had been hoping to retire five years before she turned 60. But the Government's plans mean she will now have to accept 27 per cent less pension to achieve this.