Today was a public sector workers strike in Britain, over the value of their pensions. I am not sure about the value of the public sector worker’s case. True, when I worked in the public sector, on essentially the same conditions as a civil servant, a good pension was seen to balance poor pay. People were seen to be sacrificing the potential of much bigger rewards in the private sector for a few years of guaranteed comfort at career’s end[i]. Furthermore, each public servant contributed to their pensions from their salary, and it could be argued that by doing so they reached some kind of contract with the state of cost-sharing contributions towards agreed benefits. However that last few years have now become quite long, and the volume of the required public sector payout has significantly increased as a result. The expectation of life for men at the pension age of 65 is now 18 years for men and 20.6 years for women, and further these figures have in recent years been going up by about 2 months each year. State retirement pensions, as well as private and public sector pensions, have to adjust to these new realities, and as far as state retirement pensions are concerned, have done so rather timidly: the Chancellor (finance minister) announced yesterday in his autumn statement that the age of eligibility for state pension would go now up to 67 by 2026. Despite all this I am on the side of the strikers and demonstrators today for one simple reason – because it is clear that overall the way that we have adjusted to the financial crisis fails any test of fairness, either in the sense of making those responsible for some of the poor decisions that got us into this mess in any sense accountable, or in the sense of equitable burden sharing. Further, there is a real question as to whether the burdens need to be at this level at all, particularly when growth may be sacrificed on the alter of deficit reduction. Paul Krugman is very entertaining about this in today’s New York Times, suggesting that the contemporary politician in his or her knowledge of economics is equivalent to the medieval physician’s knowledge of medicine: bleeding both then and now being being fashionable then it must follow that if there is anything wrong with the body politic it must be because it hasn’t been bled enough. How was such ignorance built? The serene business school in which I work has a large atrium looking out on the less than fully developed edges of West Oxford, now getting like everywhere a bit scruffier. Plenty of space both there and in other halls of learning for Aldous Huxley’s modest plaque of atonement reading “Sacred to the world’s educators: si monumentum requiris, circumspice”.
[i] This makes a bit specious the current government claim that public sector pensions can take cuts because they are significantly better than private sector pensions. Plus this argument does not recognise that much of this public-private gap has emerged quite recently – in actuarial terms - from the collapse of private sector ‘final salary schemes’ over the last ten years or so.