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800,000 Londoners caught out by pensions 'apartheid'
Sri Carmichael25.03.09
THE full scale of London's "pensions apartheid" is revealed by the Evening Standard today.
Experts warn that more than 800,000 Londoners under 35 face an impoverished retirement because they have failed to start a pension. All of them work in the private sector.
But each is paying hundreds of pounds a year, through taxes, to fund the copper-bottomed final salary pensions of the capital's 760,000 public sector workers.
As the Standard revealed yesterday, London's public sector pension funds have been ravaged by the stock market collapse, with local authorities alone facing a £10 billion deficit that will put extra pressure on taxpayers' pockets.
Dr Ros Altmann, a former government pensions adviser, warned: "We already have a pensions aristocracy and the pensions paupers who are paying for them."
A Standard investigation has found:
Around two-thirds of young Londoners in the private sector have not signed up to company or private pension schemes.
Only 12 per cent of private sector workers are now lucky enough to be guaranteed a final salary pension - and the vast majority of those are over 35 years old.
Experts warn that all London firms will ditch their expensive final salary schemes for new employees within the next five years as longer-living pensioners put pressure on them for longer and the recession forces cost-cutting.
The London local authority pension black hole already equates to more than £3,000 per taxpayer in the capital. If the parlous state of other London public sector pension funds is also considered that burden rises to £6,000 each.
Malcolm Small, director at retirement planning at the Tax Incentivised Savings Association, said: "It's terrifying how ill-prepared a whole generation is for old age, when it's what they do in their twenties that matters most."
He said up to 60 per cent of young Londoners offered company pension schemes where the firm matches contributions failed to sign up. And just a tiny proportion of people started a pension if their company did not pay into the corporate scheme or if they were on temporary contracts and could only access a private scheme. Mr Small added: "The young are saddled with a raft of financial pressures that weren't as extreme for previous generations. Student debt and the cost of living mean many are simply not in a position to save in their first few years of working. Then the first thing they want to do with any spare money is to save for a house deposit."
At the same time these workers must help plug the £10billion black hole which has opened up in the capital's public sector pension pots as a result of the stock market's value falling by more than a third over the past year. Government bodies typically invest 70 to 80 per cent of their pension pot in the stock market.
While guaranteed final-salary pensions continue to be offered to almost all public sector workers, private companies are replacing hefty retirement packages with less generous schemes.
Since 2000 the number of private sector workers in final salary schemes has plummeted by 40 per cent, the Institute of Directors said. They could disappear altogether in five years.
From 2012, young people will be automatically enrolled in a company pension scheme and will contribute four per cent of salary. The company will add three per cent and a further one per cent will come from tax relief. But the eight per cent total contribution will still fall far short of public sector schemes.
WHAT YOU SAID
CASS HELSTRIP, 29
Job: PR director
Salary: £37,000+
Home: Rents a flat in Earlsfield with two other people for £550 per month including utility bills.
Why no pension?
“I'm not bad at saving at all — I'm saving £1,000 a month, but for a house deposit. I'm aiming for about £70,000 or £80,000. I've always been sensible with my money but I just don't see a pension as a priority. My company doesn't have a scheme where they match contributions. Markets are so volatile that pensions seem very risky. My dad had a pension with Equitable Life and lost so much money — that really put me off. I'd rather buy property to give me security in retirement. I've worked since I was 16, doing Saturday jobs at Homebase and Laura Ashley to save money for university and then as a fundraiser three nights a week to support myself while studying. So I'm not your typical young person living on credit. I gave up having a gap year because if I had taken one I would have been in the intake that first had to pay student fees. Some of my generation have a completely laissez-faire attitude to saving and could find it very difficult later. It's clear that public sector employees have a much better pensions deal but I don't begrudge them, I just think the Government should be doing more to help young people understand pensions.”
JULES COOPER
Journalist
Age: 25
Salary: £16,000
Home: Rents a flat with three others in Deptford for £466 per month.
Why no pension?
“A pension is not on my agenda. I'm struggling to live on my salary in London, let alone save. Once I've paid rent, £72 per week council tax, bills, food and travel, I have about £50 left a week. It's ridiculously hard. I'm not thinking about how I'm going to cope in retirement. I try to block it out because it feels too overwhelming. I've got student loans to pay, about £3,000, but if my salary goes up nine per cent of it goes into paying it off. My firm has a pension scheme but I don't know if it matches your contributions or not. I haven't looked because I can't spare one per cent. If I do have any spare money I want to buy a house first, and that is harder in London than anywhere. It is unfair that local government workers have a different experience.”
JESSICA DURANT, 24
Teaches English to foreign pupils
Salary: £13 per hour in term (£14,000pa)
Home: Shares a room in a rented two-bedroom house in Wandsworth with her boyfriend, for which they each pay £500 per month
Why no pension?
“After I've paid my rent, bills and travel I only have about £70 a week. Luckily I have no student loans but I've got a £2,000 overdraft to pay off gradually over the next couple of years. There's no way I can start saving. I'm effectively employed by the school on a freelance basis so I don't have any rights to a pension. I probably need to retrain and do a PGCE to get a decent job where I can start saving, but I don't think I can afford another year of being a student. I know I need to save but to be honest if I had any spare money I'd put it towards a house. I'm aiming to start a pension by the time I'm 35. I want a home, family and job security before I decide to lock my money away for such a long time.”
Reader views (28)
If you think that apartheid between London civil servants and others is bad, please consider the plight of those who have contributed to the National Insurance Fund only to find that their UK state pension does not get uprated by 5% on 6 April. I am talking about the 3% of the world whose UK state pension is frozen at the rate when they left the UK to go to countries such as Australia and Canada or became pensioners there. If they had moved to the USA or Israel for example they would get paid the uprating. The reason that no Social Security Agreement exists between the UK and Australia is that the UK Govt refused the Australian Govt the same terms on UK state pensions as apply in the USA. Luckily the Australian taxpayer partly subsidises the failure of the UK Govt to do so. How much longer will the UK Government accept this charity or the Australian taxpayer tolerate paying it? Mr Brown let's get some meaning into the words you use such as "fairness
morality, international approach, etc." If you act quickly you might get some credibility from the Australian PM Kevin Rudd.
- Richard Lane, Kariong, NSW, Australia
Dr Altmann can talk!
Didn't she advise Brown?
And look what he did to destroy public confidence in pensions.
A bit rich, Doc!
- Dave, cumbria
15 years ago, Australia introduced compulsory superannuation (pensions). For every $100 they pay an employee, the Company must pay $9 into a superannuation fund, that the employee cannot touch until retirement. How come Australia, that is way behind the rest of the World in so many ways, can manage this but the UK can't? Even Fiji has a similar scheme.
- Mark T, Sydney, Aust
I know of two people who were Medically early on so called Health issues,stress/depression.
Who are both ex Civil Servants,
In both these scenarois there is no separate Financial Fund to pay for their generous Pensions.
The Tax Payer funds them ,not justifiable.
Is it sustainable,no Politician has the courage of their convictions to challenge this ,as they recieve generous Pensions at the Tax Payers expense.vested interest.
- Barry Deane, Richmond, United Kingdom
There is a general miss-understanding by workers in the public sector over their pensions. They are not paying towards their own pensions; they are paying for those that have already retired. The hope and that is all it is, by politicians, that when those in work come to retire there will be someone else around to pay for their pension.
If public employees were paying into their own funds, there would be no discussion on the subject. If previous employees had paid in to their own funds the London local authorities would not have a 10billion shortfall, which will now have to come from the taxpayer.
We are now closing in on the situation, where soon not be enough taxpayers around to fulfil the ridiculous promises on pensions.
Not forgetting of course those in the private sector have had their funds raided by Gordon Brown. So instead of those funds building and paying tax as they eventually drawn down, they pay tax on the gains now and as income later on.
- Ian, Reading, England
Chris
If you measure like for like - private hospital nurse v public sector hospital nurse, public school teacher v state school teacher, head of Trust against head of company, council secretary v private company secretary - the private sector salary is higher for each level of experience.
- Andy, London
It is not compulsory for employees to belong to the Local Government Pension Scheme although most do. Who wouldn't? These pension schemes, backed by the public, are secure and costly and we will contribute to them as employers for the rest of our lives, either through income tax or the combination of income tax and council tax. Unacceptable and unaffordable.
- Christine Melsom, Hampshire
Lets get this straight. Private sector heads get far more than Public sector heads. If you work in the Private sector like me you get higher pay in general than someone working for the council. They get lower wages throughout their working life but benefit with a good pension. I like many others would rather have a better standard of living while working and invest in a SIPP for my future. When young I worked as a civil servant for a short time and believe me I would rather do time than have spent my entire life working in a soul destroying job called the Public sector.
- Den, London
New Labour have now been in power for 12 years but have done precious little about this imminent pensions timebomb!
Whilst they may have spouted . . . "Pensions! Pensions! Pensions!" from time to time over the years they presumably only ever meant that for themselves i.e. we've got Pensions! Pensions! Pensions! and you (the public) have paid for them! Ha! Ha! Ha!
This is no joke especially when you look at the Evening Standard's other article on what the Fat-Cat Council Leaders are getting in terms of pensions paid for by the public! It's just a sad joke all round! Discrimination and inequality? I rather think so!
- Fraser, Telford Park
In a world where people are encouraged to be'flexible' and change jobs, company pension schemes are an obsolete idea; they are also wide open to abuse by the company.Even setting aside crooks like Maxwell,think of all those paying-in holidays taken by companies when funds were in 'surplus': where are those surpluses now?Individuals should have their own ongoing scheme, into which their current employer pays whatever sum is agreed, or simply pay a higher salary and no pension involvement.
It should also be accessible by the individual, to buy property or take an annuity as they see fit. I speak as one mug who was told how good Equitable Life were. Although I approached them, for years I've been paying a rake-off to the employee who signed me up, who did nothing but send me the forms.
Putting your money in other people's hands can never be good in principle.
- Mdj E10, london uk
The real problem is everyone stays longer in education without necessarily learning anything more to make them employable (John Major - to reduce the numbers of unemployed). Instead of only allowing the best into tertiary education and then the State paying for it to the benefit of Society, loads of people get pointless degrees and huge debts. Thanks to modern food, hygiene and medicine, we all live longer a lot longer and thus need a lot more money for retirement. It used to be a reasonable aspiration to buy your own home as your major investment, allow a bit more for food and Council tax and the State would pay for your healthcare: but the cost of living - especially the housing market - has made it impossible for anyone in their late 30s or younger to achieve anything beyond the here-and-now. When you look at what the Government has done to savers, hey: crazy NOT to have spent the few pennies you had left over every week!
- Roz, Chamonix, France
Andy said: "Public sector workers are forced to contribute to a pension. They also get, on average, a lower salary than those in equivalent jobs in the private sector so do not blame the public sector for the disparity". This is just not true any more.
It might have been the case 20 years ago but public sector jobs are competitive in salary, great pensions and often other perks like flexible working, more than 20 days holiday etc. Pick up the Guardian Jobs on a Monday and you'll see how great the public sector packages are nowadays.
I'm married with two kids and we're considering moving abroad to escape this pensions time bomb. Skilled private workers who can move will and that'll leave fewer and poorer people to pay the pension pot.
We should follow Ireland's lead and pass legislation pegging back public sector pensions.
- Chris, London
At 40 my pension pot is only £30k, not going to buy me a lot when i retire- only thing that i can hope for is that alot of losers out there who cant afford their morgages and will end up repocessed, and therefore if i can buy a cheap property and rent it out - it may supplement my pension further!
- Raminder Bhalla, Northolt
Many people are simply not in a position to plan for retirement due to high taxes and low incomes. I myself am in a £19k job as a Secretary in the private sector and quite frankly, at the end of the month I have got nothing left to save. The recent price rises in electricity, gas, council tax and groceries have definitely made sure of that. My advice is get a job in the public sector if you can and you never need to worry again!
- V., London, UK
Contributing to a Pension is the best form of saving mainly because contributions attract income tax relief of either 20% or 40% depending on a person's earnings.
As we are all expected to live longer, a Pension is a must, and it is a pity that employer's schemes can no longer be compulsory.
- John, London
I wish people would stop castigating public sector pensions! Not so long ago it was people in the private sector, with their huge annual bonuses, who were the envy of public sector workers who had to make do with the rate of inflation or slightly above if lucky. Most public sector workers have historically accepted lower salaries than their private sector counterparts because of other longer term benefits including pension schemes.
If many of the private sector workers had saved some of the huge (and now we know, largely unjustified) bonuses they earned during the good times instead of indulging in very ostentatious living, they would not now need to be so churlish about public sector workers. Even when times were good, many private sector workers, by their own admission, couldn't be bothered to join their company's pension schemes!
- Bim Eji, London, UK
I would imagine that 760,000 public sector workers also pay their fair share of taxes which helps to pay for london's pensioner population in general. lets have a bit less of this private sector good bulic sector bad nonsense.After all the the unregulated private sector has landed us in this B"""DY mess we are in now.
- James Hennessy, london england
I was paying into my employer's pension scheme years before I had a car, tv, foreign hols etc. In my 20s, I also worked at second jobs some evenings, weekends and holidays. I don't like this capitalist system, but it does allow us to save up as much as we choose to, for our retirement.
- Mkpaul, Milton Keynes
Dear Mkpaul, Milton Keynes,
It matters not what "System", capitalist or otherwise is in place, there will always be those that Hi-Jack it, and pervert it to their own ends!
The recent examples of Politicians, Bankers etc, etc, should be an illustration of what has been going on since so called civilisation began, in reality, it's nothing new, just the scale of the legal fraud!
Only this time round, the mealy mouthed words of the Politicians telling us it will all recover, will be seen to be lying through their teeth!
The fiscal/economic/social system that we had before this so called "Credit Crunch" will not recover to it's former self, there is going to be a huge readjustment for the populace & it's life style, plus the added risk of civil unrest in the streets here, and possibly globally!
- Geronimo, LONDON MIDDLESEX
Such a simple answer if the government had the guts. Same retirement age for all people, not 8 years extra for private sector. Make public sector pension not final salary but based on life time contributions instead. Of course with means tested pension benefits best answer, if you’re brave enough; is spend every penny then future tax payers will have to pay your housing and council tax bills plus property improvements like wall insulation, double glazing etc..
- Tim, London
Public sector workers are forced to contribute to a pension. They also get, on average, a lower salary than those in equivalent jobs in the private sector so do not blame the public sector for the disparity or say that they should 'share the burden' when they have a pension that makes up for the reduced salary they have had to endure over the years (I am not talking about any fat cat high paid worker in the public sector I'm talking about nurses, firemen, policemen, ambulance crews, teachers, etc who make up the majority of public sector workers). I work in the private sector yet can see that this is not the 'fault' of the public sector workers.
The reason the government can't 'voluntarily' get people to contribute to pensions is because there is no guarantee that any money put in to the pension pot is safe and a lot of people have seen that it is an unsafe place to put money as seen by so many scandals recently. Only when the government can provide a safe, government backed, scheme, are they ever likely to see people paying into a pension. The government certainly can't force people to put money into a pension scheme until such a safe scheme is available.
- Andy, London
Solution - fund public pensions from only public workers tax, that'll force them to reform the system.
- John, London
I think it's important to add that with a government that is spending more than it earns, and is borrowing to finance this spending (insanity but that's another story), there is the very real danger that in the future that the state pension may not exist, or will be drastically reduced. As a result, those who contribute may find that they will get less than they put in, and if that's the case then what's the point?
- Ted, London Uk
I had no idea what a pension was so I asked my mother, she said it's something that you pay into and a bank will invest it for you, then after 30 years or so they pay you back about 1/3 of their intial estimates, or at least that's the situation she's in at the moment.
- Bob, Cheam
The disgrace is that the Public Sector workers are not bearing any of the pain of those in the Private Sector who have seen their pension pots reduced considerably. The government is financially bankrupt as we all know so how can it continue to pay these public sector payments -no private sector company could operate like this. The message to public sector workers is simple - your employer is bust, they can't pay your overinflated pensions any longer because they can't afford to, so they have to end and end soon I'm afraid.What has been promised can't be dleivered anymore. You can't keep fleecing the taxpayer, especially when they can't afford to pay their own pension payments, let alone those of the public sector.
- David B, Manchester
When I started work in a branch of the Civil Service after a probationary period of 1 year I was told I would have an 11 per cent deduction on my wages towards my pension. This fell to 6.5 per cent after about 12 years as I had now caught up. This was very tough at the time but now as I approach my 70th birthday thank God.
The problem nowadays seems to me that people have no real hope about the future and need every penny to survive. I thought that too at the time.
- Ayliff Mcnab, Spain
If the ‘’Private Pension Schemes’’ were backed up like the ‘’Public Pension Schemes are’’ with tax payers money; when their life long invested savings with the stock-market disappears, or is misappropriated; then private pensions would have equal parity with public sector pensions; and worth investing in etc.
But the young see very clearly; that those ordinary older people that have already paid in their full dues for their pensions; are not getting them; or only getting drastically reduced pensions etc.
This doesn’t affect the bosses; civil servants, or politicians; just the ordinary workers at lower levels etc.
If the privileged public sector on all levels; were faced with the same treatment the private sector is faced with; and no tax payers to fill in their pension holes; they also would not invest in pensions that are financially worthless.
The young have a tough enough job trying to get a home and bring up their families on the poor wages they normally earn; without worrying about the future in 50 years time etc.
Tomorrow is another day; today is more important; can you eat, have you got a home; are your shoes full of holes; this matters more to the young working people; more than a pension they may not get anyway; in 50 years time.
Many will already be dead by then; and who would bet against WW3 coming before old age finally comes?
- Mickyinlondon, london
My State Pension is rubbish, and its my own fault, I did not pay in enough years NI contributions, perhaps because I never thought I would live this long, anyway I regret not making provision for my retirement as I am in the unusual circumstances of being on a State Pension and having a 15 year old Daughter, and my wifes Child Benefit dosent go very far when you are buying I-Pods, and I thought I was being clever by downsizing my house and putting the difference into savings at 5%+ as that has now gone pear shaped, so anyone reading this I would suggest that you start saving money, as by the time you want to retire the government wont help you. They onlu seem to help people who have nothing. Those who have saved are disregarded. For over 40 years I have been a taxpayer, I have never claimed dole, and I have £263 a month to live on to feed my wife,child and myself. If I had no savings I would get benefits. My rent is twice my pension. Bad planning on my part,
- Jim@Sea, Offshore
I was paying into my employer's pension scheme years before I had a car, tv, foreign hols etc. In my 20s, I also worked at second jobs some evenings, weekends and holidays. I don't like this capitalist system, but it does allow us to save up as much as we choose to, for our retirement.
- Mkpaul, Milton Keynes
