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Maude got his pension sums wrong, says IFS

The paymaster-general went to war with the unions to defend reforms that will generate little or no gain for the exchequer

Francis Maude cannot add up. That seems to be the conclusion of a report by the Institute for Fiscal Studies into the public sector pensions row.

Worse, his lack of mathematical skills provoked an unnecessary strike that cost many millions of pounds in lost output. It also succeeded in making public sector employees even more suspicious of the coalition government than they were already.

The report on Tuesday follows a similar review by the independent pensions expert John Ralfe, who concluded the same.

In short, Maude, the paymaster-general, added a series of “structural reforms” to an already tabled agenda of pension cuts that offered little or no gain for the exchequer over the longer term.

The IFS says the trade-offs between various reforms are such that it is hard tell if there is any gain for the exchequer, and if there is, it is in too tiny a measure.

Without wishing to put words in the mouth of the IFS, it also makes it a package of reforms that are not worth defending up to and including a strike.

The problem for Maude was that he promised Tory backbenchers he would be saving tens of millions of pounds from the public pensions bill.

When the unions threatened to strike, Maude said bring it on.

We know the rest.

What was unclear until the IFS and Ralfe reached for their calculators was that the reforms were offset by other measures.

As Ralfe says: “These reforms implement the core recommendations of the Hutton report to increase the retirement age in line with the state pension age and to move from a final salary to a career average arrangement.

“These structural changes follow the secondary changes already made to increase pensions in payment in line with CPI, not RPI, from April 2011 and to increase employee contributions by an average of 3.2%, to be phased in from April 2012.”

All the pain for workers is in the second paragraph of Ralfe’s statement. This was virtually agreed with unions as the price of maintaining a guaranteed retirement scheme. Nobody liked it, but there wasn’t a strike ballot planned to defend the RPI link.

The move to the lower CPI inflation measure was the single biggest cut because public sector pension funds must calculate retirement incomes with inflation included and CPI averages 0.7% lower each year than RPI.

Going back to the first paragraph, the rise in the pension age is largely offset by a rise in the accrual rate used to build up pension rights.

So the conclusion of the IFS is that: “The pension reforms just negotiated will make little or no difference to the long-term costs of public service pensions. The savings from higher pension ages are, on average, offset by other elements of the pensions becoming more generous.”

Maude’s miscalculations gave workers a reason to strike against the whole package of measures, which is not a very clever idea from the minister’s point of view and one Tory backbenchers might want to ponder. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds