Britain - The fight over public sector pensions - a lost opportunity?

May/Jun 2006

On 28th March this year, local government workers went out on strike for 24 hours against the government's plans to cut their pensions and remove their right to retire at 60 on a full pension provided they had done 25 year's service. They had waited one year for this strike - and it was actually the very first national strike by public sector workers against the imposition of an increase in retirement age and reduced pension schemes across the board in the public sector. It was meant to be just the "first warning shot" in a plan involving a programme of rolling strikes, culminating in more proposed national strikes on, or just before, the day of the local elections on May 4th.

Dave Prentis, leader of Unison called this strike "the biggest industrial action this country has seen since the 1926 General Strike". This ridiculous hype aside, the single day of action was well supported. But most of the strikers probably did not know that Prentis had issued a press release just days before the strike was due, offering to call it off, if the government came back to the negotiating table!

However, within just two weeks the union leaderships had called off all further planned action. Whether this cancellation had, once again, something to do with electoral considerations, given Labour's predicted difficulties in the local election, remains an open question. In any case, this sudden change of mind must have come as a shock to all those local government workers who wanted to force the government to drop its plans.

The fact is that, this cancellation and the pretext for it - alleged "concessions" made by the government - are entirely consistent with the policy of the union leaders, ever since the Labour government started to go on the offensive against public sector pensions.

How existing public sector pensions don't shape up

So what is the pension situation in the public sector so far, before Labour's "reform" kicks in?

There are just eight remaining "public sector" pension schemes: in the NHS, the civil service, local government, the fire service, the police, the armed forces, as well as separate schemes for teachers and university lecturers. On the whole, their terms and conditions are defined by statute and can therefore only be changed by parliament.

The civil service, NHS and teachers' schemes all have had a set, "normal" retirement age, of 60 years on a "full" pension (proportional to length of service, of course). Firemen have been able to retire at 50-60 years; police at 48-55 years and in the armed forces, officers can "retire" as early as 37 years (!), while the ranks can retire at 40-55.

Two schemes, for local government workers and for university lecturers, have a normal retirement age of 65 years already. However, the Local Government Pension Scheme (LPGS) has always had a clause allowing long-serving, older workers to retire between 60 and 65, while receiving their full accrued pension, provided their age and years of service added up to 85 - the so-called "Rule of 85". But most ordinary low-paid council workers have been unable to take advantage of this rule, as they needed their full pay as long as possible. However, it at least provided the possibility for those who needed to retire, to leave at 60 years without losing part of their pensions.

There are differences in the way these schemes are financed. Five of these schemes are "unfunded", meaning that pension payments to retired workers are met by current employees' contributions representing 5 to 6% of their wages and by "employer" contributions - which come from current department budgets. Among these schemes are two of the largest - the NHS and Civil Service schemes, covering over 2m workers - as well as the army, teachers' and police schemes. In all these schemes, except the police, the increases linked to the retail price index are paid directly by the government, which in the case of the NHS, for instance, means an extra £1bn a year coming out of public expenditure!

But the other schemes are also ultimately the responsibility of government, even if they are "funded" schemes - like the Local Government Pension Scheme, which comes under the regulation of the Office of the Deputy Prime Minister (John Prescott). These schemes operate more or less like private occupational scheme, where workers' contributions and employers' contributions are invested in shares and other securities. This has made such schemes vulnerable to the same deficits as in the private sector, especially since the same device of taking "pension holidays" was also available to the employers.

All of these public sector schemes grant pensions based on the final salary of workers - and most do so on the basis of the salary received in the last 12 months of employment before retirement, or on the best among the last 3 years, as in the case of the NHS. This means that in most cases, it is not possible to reduce one's hours or to move to an easier job on lower pay in one's last years of working, without this resulting in a cut in pension.

This is a great disadvantage when compared to the "better" private occupational schemes (for instance in the car industry), which usually base worker's pensions on the average of the best-paid year in the last 10 years of employment.

As to the amount of pension income a public sector worker can expect, in most cases this is based on 1/80 of their average annual final salary multiplied by years of service. To give an idea of what this would mean for a full-time worker on £250/week: after 5 years service, it would mean an occupational pension of just £78/week! It would take 40 years of service to retire on a pension equal to half final salary. Local government unions estimate the average pension of council workers to be only £3,800 per year.

As to policemen and firefighters, their pensions are less stingy, at 1/60 of final pay multiplied by service years, for the first 20 years and 2/60 afterwards.

Public sector pensions under attack

The so-called "reform" of public sector pensions has been dragging on for over three years, ever since the government spelled out its aims in February 2003, in its Green Paper, entitled "Simplicity, Security and Choice: working and saving for retirement".

This document covered pensions in general, including private companies' occupational schemes. For the public sector, it contained the proposal to adopt a common retirement age of 65 in all schemes, when most have always allowed retirement at 60.

Since then, these proposals have been refined and new pension schemes proposed for the public sector. There is a proposal that these schemes should no longer be based on final year salary or comparable systems, but on a "career average", which is bound to be much lower. And it is suggested that everyone under 50 years should go into the new schemes. In every proposed case, however, pension contributions would be increased, if not for everyone, certainly for new entrants, amounting to a pay cut in the future.

In the meantime, raising retirement age for the basic state pension above 65 had become the central plank of the government's pension "reform agenda", under the pretext of giving older workers more "choice" and taking into account greater life expectancy. Never mind the fact that all the evidence shows that this does not apply to everyone - and particularly not to lower paid manual workers!

Nevertheless, by removing public sector workers' "choice" to retire at 60 years on a full pension, and leaving them only with the "choice" between retiring later on a full pension or retiring before 65 on a much reduced pension, the government dares to claim that it is removing discrimination against older workers and providing them with greater "choice"! In the case of their proposal to revoke the local government's "Rule of 85", ministers have even the nerve to hide behind a European anti-discrimination directive (2000/78) despite the fact that this directive specifically excludes national "social protection schemes and pension agreements". In fact the directive's aim is clearly to avoid negative discrimination but not positive discrimination which would be of benefit.

But if the government was so keen on avoiding discrimination all it would need to do, is to allow all public sector workers, and indeed all workers, to retire at 60 on a full pension! However, of course, Labour's "pension reform" has nothing to do with fighting discrimination, giving workers more choice, nor with increased life expectancy, for that matter - but about cutting the state's social expenditure.

As a pre-emptive measure against public sector workers, in case its proposals meet with too much resistance, the government has itself adopted the language and arguments of the bosses' organisation, the CBI, by referring to public sector workers as "privileged" when compared to their counterparts in the private sector, whose retirement age is usually set at 65 years. As if it is a "privilege" to retire at 60 years, when you might still be able to enjoy a few years of your life, free of onerous work! And as if it is a "privilege" to draw a pension you can hardly live on, which has to be made up with mean-tested benefits from social security!

But if one compares public sector pensions to a private occupational scheme such as the one at Ford, for instance, the idea of "privilege" in the public sector goes straight out of the window. Because not only are Ford workers a lot better paid than their public sector counterparts (on average they earn £400/week basic pay, at least), but their pensions are based on 1/52nd of their best paid year's income per year of service and their contributions are not higher than in the public sector. So after 25 years service, a retired Ford production worker would be on a pension of at least £192/week - or around 2.5 times the equivalent in local government. Although, of course, even this is not enough to live on!

This idea of public sector workers being "privileged" is all the more hypocritical because in the past few years, the same company bosses who propagate this nonsense, have closed down half their private occupational schemes, excluded new entrants and/or pushed up workers' pension contributions, purely on the ground of greed. The truth of the matter is that the capitalist class just refuses to pay its share of workers' deferred wages for retirement, after extracting the best years of their lives in sweat and blood. And they want even more. So, not only do they expect the government to step in when they declare their own pension schemes in deficit, but they also want to get more out of the public purse in tax concessions and subsidies on the back of the public sector as a whole and public sector workers in particular. It is not for nothing that they criticised Brown's announcement of 100,000 civil servant job cuts in 2004 as not enough!

Preparing the ground for a fightback?

When the government's intentions were spelt out, in 2003, the leaders of the unions representing public sector workers, (all 13 of them), declared themselves implacably opposed to any attack on pensions. There was no way they would agree to an increase in retirement age nor to inferior schemes. Of course, they were only responding to the very angry reaction of public sector workers on the ground. Retirement at 60 years on a guaranteed pension, no matter how miserable, was and is, a much needed, "perk", compensating in some small measure for low pay and the ever-declining and therefore, more and more stressful working conditions in public services.

The public sector workforce as a whole - numbering today around 5.8m workers, with 3.6m in unions - could have been a formidable fighting force, if organised together. And the union leaders now threatened a "united fight" to defend pension rights across the whole of the public sector. Workers could expect, therefore, that an effective fight back was at last going to be organised against this latest government attack.

However, since the wheels of government bureaucracy move a little slowly, things had only really come to a head by the end of 2004, after more than a year of talks involving union leaders, and the unions' lobbying of MPs, letter-writing and campaigning. Unsurprisingly none of this had shifted the government's position on pensions one iota. But now the government set a date for the implementation of its proposals, which would require a change in the law, for 1 April 2005.

From December 2004 onwards, the unions involved held consultative ballots and strike ballots among their members.

After local government workers in Unison, the T&G, Amicus and UCATT voted for industrial action, a date for a one-day strike was set by the leadership for 23 March 2005. This was to be joined by the civil servants' union, the PCSU.

However, it seemed strange to everyone concerned that the large battalion of NHS workers, was not balloted, even though their pension scheme was also under exactly the same kind of threat. As to NATFHE and the NUT representing university lecturers and teachers, they had been inexplicably slow in following suit, proposing a separate strike for their members, almost a month later, on the 13th and/or 26 of April.

But even so, the proposed strike on the 23 March looked as if it was going to be very big. There was even talk of "the largest industrial action since the 1979 Winter of Discontent". In the run-up to the 2005 General Election, Labour's very low scores in opinion polls made this strike appear as a challenge from the union leaderships, at least in the view of some commentators.

It seems to have worried the Labour party as well. Already, in mid-January, the party Chairman, Ian McCartney, had urged the union leaders to address the pensions issue "through dialogue rather than confrontation", according to a letter which was subsequently leaked to the press.

Just days before the strike was due to begin, the T&G, Amicus and Unison leaders notified their members that they had called it off. They said that the government had suddenly granted a number of concessions and was now prepared to negotiate with them. Yet it transpired that all that government ministers had agreed to was to re-open negotiations, this time, "on a nothing ruled in and nothing ruled out basis". The statute removing local government workers' "Rule of 85" had already been put into process, so it had to be revoked. But this was the only "concession" made by the government and, at best, a very temporary one.

In fact this was merely delaying the implementation of the "reforms" until the elections were safely over. Nevertheless, to prove their loyalty, on 16 April all of the leaders of the main unions, including Tony Woodley of the T&G, Derek Simpson of Amicus, Prentis of Unison and Paul Kenny of the GMB, signed a "Unions for Labour" letter to the press calling on their members to "vote Labour". Within two days, Unison was boosting the government's election campaign with a £540,000 poster campaign against Tory proposals to cut spending on public services by £35bn. As if the Labour government had not been reducing public spending in every department (except the NHS) and boasting about it in every budget! But where did this leave all the public sector workers who had expected to have a fight over their pensions, when it became clear that they were really just back at square one? This could only result in great confusion among the rank-and-file.

Fiery speeches here, concessions there

The TUC conference of 2005, however, gave the union leaderships another opportunity to talk big and make threats of mass action over pensions if the government did not back off. This time they spoke of organising the biggest strike since the General Strike of 1926. Prentis of Unison now threatened that 3m public sector workers could be involved in a strike "to protect their pensions".

Mark Serwotka, the supposedly left-leaning leader of the civil servants' union, the PCSU, said that the government would be "frankly mad" to take on 13 unions with more than 3 million members across the public sector, including the NHS and fire service.

Beyond the fiery talk at TUC conference, all of the public sector union leaderships were soon deeply immersed in "tripartite" talks with "public sector employers" and government ministers. This hard talk at TUC conference was really for the sake of pacifying their ever-angry members. Perhaps it was also meant to be a reminder to the government of how lucky it was that its union "partners" were choosing the route of "dialogue rather than confrontation".

But there were already hints of concessions on the part of the unions: for instance, Serwotka explained that his union was in favour of "choice" of retirement age, but did not agree with the idea that there should be a "compulsory" retirement age of 65. In fact, the government's proposals had always included the possibility of retiring at an earlier age, provided that workers did not expect to get their full pension, or that they were prepared to make higher contributions to the scheme. At this stage however, the union leaderships still maintained that they would not consider it acceptable to split the workforce into two tiers by agreeing to a lesser pension scheme for new entrants in exchange for existing workers maintaining their retirement rights.

Anyway, the fact was that the proposals for different sections in the public sector were being negotiated separately. The Local Government Pension Scheme and Firefighters' scheme were being considered each on their own, while the three "unfunded" schemes, for the NHS, Civil Service and teachers, were being dealt with together. This did not mean that joint action involving the 13 unions and all the workers concerned was now impossible. But whether it happened or not, depended now even more than before, on the political will of the union leaders to take on the government - a political will, which had been lacking so far.

Breaking ranks

The first pensions "deal" was signed on 18 October 2005 between the government and the leaders of the civil service, NHS and teachers' unions. The media reported that the unions had "won the fight to retire at 60". But there had been no fight, merely amicable talks, even if the unions presented this as a victory, as a result of their threat of a "mass strike".

This first deal had taken five months to come to fruition - and a bitter fruit it turned out to be. Its finer points are still to be decided (and put to members' vote) by June 2006, but so far a lot of concessions have been made. The outcome was welcomed by the pro-business Economist, which wrote that the unions had effectively signed up to the government's cuts, which were to generate £13bn savings a year for the Treasury, according to official figures - meaning £13bn robbed from public service workers!

In essence, reneging on their past opposition, union officials agreed to allow the creation of a two-tier workforce.

Future civil servants, teachers or NHS staff, recruited after the cut-off date, probably in July 2006, will either have to work until 65 or pay higher contributions to retire earlier. On the low pay of many of these workers, this would hardly be an option. But those who try to afford higher contributions will take home lower pay as a result. In other words this will give them a pay cut. What has not been "ruled out" yet, is the possibility of lesser pensions based on the "career average" salary, being brought in.

As to existing workers, they will retain their right to retire at 60. The existing occupational schemes in the NHS, civil service and education will be phased out as current workers retire. This rather puts in doubt the assertion of the PCSU leadership when it claimed in a letter to its members, on 21 October, that it had "secured lifetime protection of the pensions of all existing members". Indeed, what if this or a future government, comes back for more and tries to force everyone into the new schemes under these new terms? The shrinking section of workers who will have retained their old pensions rights will find themselves in a weaker position than they are today. More generally, how will this wedge driven into the ranks of public sector workers, affect the unity of the public sector workforce? After all, it concerns not just pensions but possibly wages as well, since contributions may be set at different levels, Not only is the union leaders' policy reneging on their own commitments, but it is a dangerous one for the future.

The excuse of the union leaderships for these concessions, was to say that they could not have mobilised a fight over the rights of "future workers". But the fact is that they did not try, even after their members had overwhelmingly voted for strike action. They just went on to negotiate a bad deal for every present and future public service worker in the departments they represented, behind the backs of their members. Worse, they made the conscious choice of breaking ranks from the other public services sections, thereby weakening the position of all sections, including their own.

Following the pattern

The next episode in this pattern of union leaders' wheeling and dealing concerns the biggest remaining battalion of public sector workers, the 1.4m workers in local government.

After the one-day strike of 28 March 2006, the union leaderships involved announced jointly, on 11 April, that they had suspended all further action "to allow negotiations to take place". They explained that this was their preferred strategy and therefore further industrial action would "not make a difference". Both sides had agreed to begin talks "on a nothing ruled in, nothing ruled out basis"...again!! All existing members of the Local Government Pension Scheme would lose their "Rule of 85" but they would have some kind of protection built into a "new look 2008 scheme" in which future workers would however, not have the same rights. Was that not what the government was after in the first place?

What difference had been made by the one day strike, then? To quote the GMB union statement, "the employers offered crucial concessions which have opened the door to meaningful negotiations. Most of all they have conceded that half of all cost savings can be recycled to improve members' benefits and/or extend protection for the removing the "Rule of 85". Meanwhile, of course, John Prescott has gone ahead with removing the 'Rule of 85' from the scheme, effective from October 2006 with full past service protection for everyone plus future service protection for the over 53s. We must seek to improve on that."

What this meant was that the union leaders had agreed to discuss a deal which was more or less modelled on the deal they struck with the government in October for the other sections of public sector workers. There would be a two tier workforce created in local government. Existing members of the pension scheme might still be able to retire early, at 60, on the same terms as the now abolished "Rule of 85". But this would depend on whether the projected "cost savings" from removing such a right in the future are used to protect these existing workers' rights or whether they are used for "improving members' benefits". Apparently this is meant to be a trade off!

The GMB, at least, told members that the dispute was not yet over and that they still had the right to follow up with further action but it also said, "for now we keep our powder dry".

Whether the union machineries' powder had ever really been dry and ready to be lit, is another question. Because there was an evident gap between members' perception of what they were fighting for on the 24th March and union leaders' intentions.

Indeed, most workers probably thought that they were fighting to keep their "Rule of 85" and to keep their pension scheme intact. Whereas the union leaders merely wished to get a similar "concession", if it can be so-called, to the one which had been made to civil servants, teachers and NHS workers in October last year.

It is never too late

Firefighters are the latest section for which a similar rotten deal may soon be reached by union leaders, who have thrown their "left" credentials out of the window for the occasion and recommended that a strike ballot be put off indefinitely. Whether the firefighters, with their militant tradition, swallow their leaders' sweet-talking remains to be seen.

But while the fight over public sector pensions has been, so far, a history of lost opportunities, the government's attacks on pensions are by no means a done deal yet. All of them are supposed to see the final stages of the implementation being decided by June/July this year, when members are meant to be consulted by ballot. And this may provide opponents of these sell-outs with the opportunity to make their voices heard.

Besides, there are other attacks on pensions in the pipeline, concerning workers either in already privatised industries, like the railways, or in sections due for privatisation like Royal Mail. This latter pension scheme has a huge deficit due to the government itself taking a long pension contribution holiday in the late 1980s and early 1990s. Indeed it is probably on the cards that postal workers, whose shift work and long hours are legendary, to make up for derisory basic pay, can expect to be told in the near future they will no longer be able to retire at 60 years.

Beyond this, there will very soon be an even more drastic attack on private sector pensions - a plan which is currently on Blair's drawing board - involving the postponement of retirement age beyond 65 for the purpose of the basic state pension and, probably, much higher employee contributions for occupational and similar private pension schemes. These attacks will affect the vast majority of the working class and may generate enough anger to shake the unions' leadership out of their cosy habit of cobbling up deals on workers' backs behind-closed-doors, at least for a while.

If so, the policy of the union machineries can be predicted in advance: they will try to slice up the forces of the working class into separate sections, pretending that each one has its own specific interests on the basis of technicalities. The only effective counter-measure to such tactic will be for workers to adopt a common programme of demands aimed at restoring and improving the rights of all older workers, whether in the public or in the private sector: a retirement age low enough for everyone to get some rest at the end of a working life, pensions high enough to be able to enjoy this rest, and the same pension system for all, based on the solidarity between generations and higher taxes on the profits produced by the labour of the working class. Then and only then will there be something worth fighting for, for everyone, and the basis for real unity of the working class.