Exclusive: FactCheck – The 1.1 million potential losers in Danny Alexander’s pensions shake-up
The claim
“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.”
Danny Alexander, 17 June 2011
Cathy Newman checks it out
I reported earlier this week that Danny Alexander had extended an olive branch to the unions – a promise not to make the lowest-paid public sector workers contribute more to their pensions. Today the olive branch was unveiled, but it’s looking rather bereft of any juicy fruit. The Chief Secretary to the Treasury vowed that employees earning less than £18,000 would either be exempt from having to pay more into their pensions or would have their contributions capped. Now the FactCheck team has discovered that might not be as generous as it sounds.
The background
Danny Alexander roused the anger of the unions today when he appeared to signal that the Government had made its mind up on public sector pension reform – despite being halfway through negotiations with union representatives.
For his part, the Chief Secretary to the Treasury accused the unions of scaremongering after they announced strikes – also before the consultation on this massively divisive issue has concluded.
Mr Alexander confirmed that most public sector employees will have to work until 66 and pay more in pension contributions: an average of 3.2 percentage points more.
But he said the lowest-paid workers would be spared the hike, with no contribution increases for people earning under £15,000, and a maximum rise of 1.5 per cent for those on less than £18,000.
With the prospect of the two sides agreeing a compromise on pensions looking increasingly unlikely, FactCheck delved behind the headline figures to see if the Government’s proposed deal is really as fair and progressive as ministers claim.
The analysis
The night before Mr Alexander made his speech, the Treasury circulated a note to the press about the key policy proposals it would contain.
“Those earning less than 15k (FTE) will not face any contribution increases,” the note explained.
Those three letters, standing for “Full Time Equivalent” immediately set alarm bells ringing among the unions, who feared that part-time workers would emerge as the big losers.
The emphasis on FTE suggested that a part timer’s earning power would be judged according to their Full Time Equivalent (FTE) salary rather than their actual take-home pay.
So a part-time nurse earning an equivalent salary of more than £18,000 a year – but working far fewer hours and therefore earning much less than a full-time worker – would miss out on the exemption, it seemed.
How many people would be affected by the loophole?
The TUC calculates that just over 1.1 million people are part-time public sector workers who earn the equivalent of a full-time salary of more than £18,000 a year.
They arrive at this figure by interrogating the statistics collected by the Government in the Labour Force Survey, based on data from 60,000 UK households.
Earnings are expressed in an hourly rate in the survey, but the union’s policy unit calculates that an annual full time salary of £15,000 is equivalent to £7.80 and hour for a part-time worker.
An £18,000 salary equates to £9.36, the union says, based on a 37-hour week, the most common working pattern for a public sector employer with a full-time contract.
According to the survey results from last year, there were 132,016 men working part time and earning more than £9.36 an hour, and 963,591 women.
So about 1.1 million people are in line to miss out on the exemptions announced by Danny Alexander, despite the fact that, as part-timers, they may well take home far less in a year than the Full Time Equivalent salary.
Of course, we don’t know how many hours each of those individuals earns, and the impact will be different for each individual, so it’s impossible to say what the financial penalty will be across the board for people who work part-time.
The TUC predicts that a part-time nurse who earns a FTE salary of £22,000 a year, but might take home half that sum a year, could see her pension contribution almost double.
Because 84 per cent of part-time public sector workers are women, the TUC says this is an issue that will affect women disproportionately.
FactCheck ought to point out that when Danny Alexanader actually made the speech hours after the note was sent out, he neglected to read out those three small letters in brackets that could affect the lives of more than 1 million people.
The audience, some of whom were visibly struggling to stay tuned in during the Chief Secretary’s formidable speech, might have been grateful that he cut it short by a few letters.
But for more than a million people, the omission raises a serious question as to what designs the Government has on their future earnings.
FactCheck contacted the Treasury for clarification and we were told that what Mr Alexander had announced were “broad proposals”. A spokesman said: “The details are still very much subject to discussion.”
Cathy Newman’s verdict
It’s a mark of the bad blood between the unions and the chief secretary to the Treasury that even an olive branch is tossed back in his face. The number of part-time workers in the public sector means those three little letters – FTE – spell a whole lot of cash. So it’s no wonder the TUC is exercised about it. And despite the offer to the lowest-paid, the government has so incensed the unions, short-circuiting talks with them by announcing firm proposals on pensions, that one small compromise has failed to quell the revolt. Strikes this month were already inevitable. Today’s development makes further industrial action in the Autumn a racing certainty.
[An update was published on November 30, 2011 - click here to read.]
The analysis by Patrick Worrall
There are 13 comments on this post
Isn’t this higher contribution rate proposal indirect gender discrimination? Therefore unlawful according to Sex Discrimination law?
The ‘pool’ of workers who’re likely to be hit by the rule of ‘over £18k full-time equivalent’ is over-overwhelmingly of women (963k vs 12k).
Moreover, the ‘average pay’ proposal still leaves top earners usually gaining proportionately more pension for their career contributions than the lower paid. Who’re predominately women.
Is Danny Alexander a misogynist? I think we should be told if he is.
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As you point out, there are many more women working part time than men. Therefore if the percentage increase in the contribution rate is based on actual salary rather than FTE it would be sex discrimination against men. If two employees are doing identical jobs, but one works full time and the other works 50% of the time, then to be fair the part-timer should get 50% of the pay and 50% of the pension for 50% of the amount of contributions. Therefore the full-timers and the part-time must have the same contribution rate. The government, as a fair employer, should not be trying to engineer anything else. In matters such as this, the use of FTE is implicit. If the government wants to redistribute income from to those on lower incomes then there is plenty of leverage in the tax and benefit system without bringing discrimination into the employment relationship.
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This could be a rich seam of litigation for me learned friends! Suppose an employee works extra overtime that takes his/her annual earnings above £18,000 and she/he doesn’t have to pay the higher % contribution? We don’t know yet.
After all, pensions are calculated by reference to both years of service – proportionately less for part-timers – and a ‘pay’ figure calculated upon retirement.
It was never true that superannuation schemes of any sort could be either fair or predictable.
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I assume that a part time employee, the majority of whom are women, will now be able to face retirement knowing that they will receive a full pension.
This should eliminate the unfair situation where a woman who works part time for the benefit of her family will no longer be penalised at retirement by receiving a lesser pension than the [FTE]
Of course it will not solve the problem of women having their career progress impaired by having children but it would seem to be a step in the right direction.
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There is no such think as “public sector pensions” in the sense presented by the media of one gold plated scheme.
The Civil Service scheme has people paying nothing to 1.5% of salary. The NHS scheme is different. The Local Government schemes typically have people paying 6.8% of their salaries.
For local government workers their pension is part of their pay that they are volunteering to defer until retirement. It’s not a taxpayer given gift, a bonus or a long service reward. It is their pay!
The government are proposing a 3% increase in contributions for a decrease in benefit. This is a 3% pay cut for most workers. In addition the value of the pension has been cut by moving to CPI rather than RPI.
So millionaire banker bonuses, tax avoiding companies, and tax avoiding cabinet ministers are generously allowing public sector workers pay for the deficit by an effective selective 3% tax rise on pensions.
No wonder the political class in Westminster think it’s fair. How much more is an MP paying for a generous pension and is it on CPI or RPI – we want to know!
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Compare this to Jon’s blog about PFI providers squirreling their profits offshore to avoid tax.
According to this government it is right for part-time workers to pay over the odds for their pensions while fat cats get richer on government incompetence and an unwillingness to tackle tax cheats.
Tax avoidance is only legal because various governments haven’t passed the laws to reflect the crime that it really is.
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Naw – we’re not playing fair here. Almost all people working in the public sector who are working part time have chosen to do so rather than take a full time job. That is their choice – based on their other life commitments. If they do so, and are capable of receiving more than £18k if they worked full time, then it’s perfectly reasonable that they get the same deferred benefits pro rata as a full time employee. The alternative is to argue that part timers should automatically be subsidised by the rest of the community – which makes little sense.
No doubt someone will trot out the example of the single mother who can ‘only’ work a few hours a day. In response to which I point at the partners of wealthy high earning spouses who do a small amount of work to keep their hand in. To subsidise the latter because of the existence of the former is inequitable: rule 1 of economic policy – make your subsidises targeted and transparent, not broad based – and vastly more expensive…
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Somewhat judgemental. Many “part-time” workers do so to work around child care responsibilities. Some do so because disabilty or medical conditions stops full-time work. Still more do part-time work because employers want “flexibility” and want to be able to offer “extra hours” when they need to from a pool of people.
I personally know one “part-time” worker who has 5 “part-time” jobs to build up a living wage because all of the worker is on demand with no guaranteed hours.
There may be a few footballers wives who do a few hours to fill in the time but many women suffer from low pay. Working in the public sector is one way that women in poor pay can build up any kind of pension and any kind of independence as a pensioner.
If public sector pensions are now going to be unfair and unpredictable it makes low salaries far less attractive and in the long term means workers in public service will expect salaries of equal status as the private sector.
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Thanks for your response Stephen – my experience is that the public sector doesn’t hand out part time jobs like that – rather it is private sector that sees people build up that sort of portfolio of jobs. But you may well be able to correct me on that. I entirely agree that the sort of casualisation of labour that is emerging again is extremely unhealthy. Remember we are focusing on the public sector in this debate – and that’s generally less likely to indulge in that sort of bad practice because the unions are still active there.
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Just to help out. My wife works in the public sector and, without going into detail, her department is about 150 people, most are women and around 80% are part-time. This is to provide flexible customer care. She can be expected to work until 9 at night once a week and at weekends on 20 weeks a year.
Average public sector pension £7000 per year. Exclude chief executives and the department heads and the average is closer to £4000. Her most recent pension statement said that at 66 she will get £5000 per year. Her job requires a masters level qualification.
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Part-timers in the public sector are least likely to join any superannuation scheme. For the few that do, their pension accrues according to their F/T equivalent years of service. Which makes their pensions proportionate to their annual earnings times whole years of service rather than their wage-per-hour.
So I’ll say again, the government proposal to charge more for P/T workers earning at the rate of £18k pa is indirect sex discrimination and unlawful.
Superannuation is always inherently unfair because the highest earners receive disproportionately more pension relative to their lifetime earnings. Low wage earners – such as part-timers – receive proportionately even less. It needn’t be that way, but the high heid yins prefer their big benefits. The low-paid lose out.
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[...] affect over a million part time workers, the vast majority of them women. Nicola and Channel 4’s Fact Check both have more on [...]
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What does Danny Alexander know about ‘progressive and fair’? His Tory colleagues are giving tax breaks to the rich.
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