It is reported in the Telegraph that public sector workers are going to have to pay more for their pensions each year to help pay down the UK’s huge deficit.

It is believed that John Hutton, Labour’s ex-Defence Secretary and the coalition’s new public sector pensions review chairman, could recommend that public sector employees pay more towards their pension from Spring 2011.

According to the Telegraph this is a measure that could see the end to “ … the era of early retirement on generous payments … ”.

But what it really means is a pay cut for the public sector. An increase in the contributions they make alone would not move their retirement date, the amount they received at the end nor as to whether they could take it early or not. The pension amount to pay out stays the same. Final salary pensions are after all paid out on the basis of final salary, not contributions.

What it would do is reduce the public sector workers’ monthly take home pay. It would make it less attractive on a total remunerative basis to be a public sector employee. For now.

This can be maintained for as long as it takes. Then pay rises could gradually redress the balance in the future when the numbers of public sector employees has reduced enough. After all, this move would leave the public sector final salary schemes (including MPs(?)) intact, but just make it temporarily more expensive for the worker concerned. Whilst at the same time easing pressure on the Treasury coffers.

Public sector pension contributions are not ring-fenced nor are they put aside in a real separate fund. It is really just an administrative exercise. Public sector pensions today are paid out of today’s taxes. Tomorrow’s pensions for which ‘contributions’ are made today are paid for out of tomorrow’s taxes.

All the government is doing is reducing public expenditure today by lowering the actual overall monthly wage bill for the next few years.

Ask yourself, where are all these extra contributions going to go? Are they going into a ring-fenced fund? Or are they going to end up in the general pot?

One also wonders whether this can legally only be applied to new employees as all the others have contracts. If this is the case then why not just lower pay for new people as this would actually not only cut the pay bill but also the final salary payments as well?

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