Ministers and the unions are engaged in a propaganda war to convince people that they are right about plans to reform public sector pensions ahead of Wednesday's strike. But who's telling the truth? Polly Curtis, with your help, finds out. Get in touch below the line, email your views to polly.curtis@guardian.co.uk or tweet @pollycurtis.
The public row between the unions and the government is intensifying in the run-up to Wednesday's walk-out over public sector pension reforms. The unions say the reforms mean their members will have to pay more, work longer and earn less. The government says public sector workers must play their part in making the system more sustainable in the long-term as people live longer and that nevertheless the reforms will still mean they have among the best pensions available. Who's right?
Throughout today I'm going to fact-check the main claims and counter-claims about the deal. Are there any particular arguments that you think need dissecting? Do you have any evidence that helps prove either sides' case?
Get in touch below the line, email me at polly.curtis@guardian.co.uk or tweet @pollycurtis. My colleague Jill Insley has written a glossary at the end of this to help with some of the common pensions terms, click on the words to jump to the definition.
Union claim: state employees will have to pay more, work longer and earn less.
Analysis
The government is proposing an average of 3.2 percentage point increase in pension contributions with those earning under �15,000 exempted from additional payments. This means most people will pay more. Those earning �15,000-21,000 will have their increase capped at 1.5 percentage points so those earning in excess of this will pay significantly more. It's important to remember that this is 3.2 percentage points, not per cent. So new teachers who currently pay 6.4% of their monthly income into their pensions face an increase of at least 50% to 9.6% (in reality this is more because most earn more than �21,000 so will pay more to help protect lower earners). The government accepts that this means people will pay more and the treasury acknowledges that this is the only element of the deal designed to help with deficit reduction in the shorter-term, rather than tackle the sustainability of public pensions over the longer term.
The pension age for public servants will rise to match the state pension age of 65 ? which itself is rising to 66 ? with police and firefighters spared. In reality the NHS, teachers and civil service schemes introduced by the Labour government already moved the retirement age for new entries to 65, matching the existing situation in the local government scheme. The government has also exempted anyone within ten years of retirement of this to give people more time to plan. But there are a big group of people who started on pre-Labour pension schemes but are further than 10 years away from retirement who will now have their retirement age changed. The government accepts that their reforms mean some people will have to work longer.
The unions say their members will get less when they retire because the type of pension is changing along with their accrual rates. The government is retaining the best defined benefit schemes (rather than defined contribution schemes), but the method by which they are calculated will no longer be linked to final salary, but instead to career average, meaning the scheme will be cheaper for the taxpayer and some will lose out. The government originally offered accrual rates of 65ths ? meaning they would have to work for 65 years to get a pension equalling their final salary. They have now moved this 60ths, which matches the accrual rates negotiated by Labour with the NHS, teachers and local government schemes in 2006 for new entrants. The civil service is already on an accrual rate of 60ths.
All accrued pension rights will be protected and public sector workers will essentially have two pensions with a changeover date in 2015. This report by the Pensions Policy Institute has a very good table outlining the main elements of each of the pension schemes in the public sector (page 15).
Verdict
The unions are right that all public sector workers ? apart from the lowest earners and those in the armed forces ? will have to pay more each month and many other public sector workers will have to work longer, meaning they will pay more into their pension pots over time. The unions are also right that people will have to work longer, though the situation does not change for people in the local government scheme or entrants to the NHS, teaching or the civil service since the Labour reforms of 2006. Overall state employees will get less when they retire because of the shift from a final salary scheme to a career average and the change in accrual rates. Accrual rates will not however change for civil servants and entrants to the NHS, teaching and local government schemes since the Labour reforms of 2006. But not everyone will lose out in pension payments when they retire and the government argues that the reforms have been designed as progressively as possible to protect lower earners.
Government claim: the reforms have been designed progressively to protect the lowest earners.
Ministers say they are protecting low earners and that the change to career average schemes will end the situation whereby high-flyers who get huge salary surges at the end of their careers do the best out of the final salary scheme.
Analysis
The government argues its reforms are progressive because it has protected those earning less than �15,000 a year (around 15% of the workforce, mostly in local government) from an increase in contributions, and capped increases to 1.5 percentage points for those earning �15,000-21,000. This means that those above the average are paying more than the 3.2 percentage points.
They also claim that the move to career averages to replace final salary schemes means that the highest-flyers, whose pay typically escalates fastest at the end of their career, stand to lose the most while those will have steady incomes through their lifetime are relatively unaffected. It also builds in protection for people who go part-time at the end of the working lives, who under the final salary schemes lose out.
As a result of this the government has repeatedly claimed that those on low and middle incomes would get a pension at retirement after a full career at "least as good, if not better" than now. This has become one of the most disputed elements between the unions and ministers.
On Sunday, the Observer splashed on a challenge to this claim:
The row over pension reform that is set to bring two million workers out on strike on Wednesday has become increasingly bitter as Britain's top trade unionist accuses ministers of "deliberately misrepresenting" the income public sector workers will receive in retirement.The unions said on Saturday night they have exposed repeated government claims that everyone on low to middle incomes would get as good, and in some cases better, pension deals under the new scheme. They said such assertions were contradicted by the government's own pensions calculator, produced on Saturday on the official Civil Service website. Examples fed into the calculator appear to support their claim that some people would lose out under the new scheme, even if they worked until 67.
According to these calculations, if people retired at 60 under the new scheme, which they would still be entitled to do, they could, in some cases, be at least 20% worse off than if they had done so under the existing scheme. And if they worked another seven years under the new system, the calculator shows that, even after paying substantially increased contributions, some would still be worse off than if they had been able to carry on until 67 under the existing system.
I've just been speaking with a Treasury press officer who has, unsurprisingly, disputed this account saying that the calculation was not carried out properly because it compared what would happen now if people worked to 67 to what would happen under the new scheme if they worked to 67. Under the old scheme people wouldn't have worked until they were 67.
I asked him for the costings of the change to career average schemes and the accrual rate changes, but he said that these could not be disaggregated, though he confirmed that they would be ultimately cheaper to the public purse and therefore an overall loss for some state employees. He said:
Overall, final salary is more expensive than career average, but for individuals it will depend on your career profile. If you're a high flyer you're going to lose out. If you are a low-flyer you could lose out and it may work out better for you if you go part at at the one of your career. But when you add more generous accrual rate it may work out better for people - it just depends on their career profile.
Verdict
If you accept the government's initial argument that public sector pensions must be reformed to make the system sustainble in the future, the government is right that the reforms have been designed in a relatively progressive way. But it is wrong to claim that middle and low income earners will not lose out. Moving away from final salary schemes to career averages costs high-flyers who earn the most at the end of their careers disproportionately more than people whose salaries early flatline. This is relatively progressive. However people of all levels of earnings can potentially lose out, depending on the individual pattern of their careers. It has not produced any evidence ? and says it can't ? to back up its claim that low and middle income earners won't be disadvantaged.
I'm going to look at some more specific claims that either side are making - which would you like me to investigate? Which do you have evidence to prove or disprove? Get in touch below the line, email me at polly.curtis@guardian.co.uk or tweet @pollycurtis.
Union claim: contribution increases are simply a tax on public sector workers
The unions say that my targetting the public sector pension bill the government has simply created a tax on state employees.
Analysis
The Treasury told me that while the wider pension reforms are necessary to put public sector pensions on a sustainable footing now that people are living so much longer, the contributions increase is being introduced to help cut the deficit. They have put a target on the policy of raising �2.8bn which has meant that the decision to protect lower earners shifted more of the burden to higher earners who can expect to pay up to six percentage points more.
My colleague H�l�ne Mulholland, who has followed this issue closely throughout, writes that the unions claim this is simply a "cash grab" from the treasury with unions also making the following complaints:
Unions say that it wasn't until after Alexander laid out the plans that they realised that the contribution increases� is calculated on the full time equivalent earnings. In other words, if a woman earns under �21,000 because she works part time, she would not benefit from the 1.5 percentage point cap since her contribution rate would be based on the equivalent full time earnings.
The other bug bear is that currently the contribution rates of public servants vary according to the field they work in. The GMB points to the fact that an NHS nurse currently chips in 6.5% contributions, whereas the rate for a high earning judge is zero. With the government saying the average increase over three years will see contributions rise by 3.2 percentage points, and a cap of six percentage points for the top earners, this could see a nurse contribute at least 9.7 percentage points by 2014-15, whereas the judge would be chipping in 6.
While members across the public sector salary spectrum are exercised by the contribution rises, there is particular concern about the impact on the only self-funded pension scheme in the pack - the� Local Government Pension Scheme (LGPS) - amid fears it could collapse if too many people pull out in protest at having to pay more.� A recent� survey of 1,000 scheme members by the GMB union found that 55% said they would opt out� if a contribution rise� as little as 1% � were imposed. Last week, the Chartered Institute of Public Finance and Accountancy, the trade body representing public sector accountants, suggested that � the �900m savings expected from expected pension contribution could be wiped out if just 20% pulled out of the scheme.
�
Verdict
The Treasury accepts that the contribution increase is designed to help reduce the deficit, rather than improve the longterm viability of the pensions system. It has said it will raise �2.8bn from the policy. The money will not go directly into reducing the future costs of public sector pensions, but paying down the deficit. In that sense this is a political decision to make public sector pensions contribute more in this way to the deficit reduction programme. It's fair to argue ? as the unions are ? that this is an additional tax on state employees. All governments make decisions to target savings or taxes that affect different groups for example smokers via tobacco taxes, parents via childcare cuts or commuters via rail fares.
Government claim: the army could be drafted in as part of contingency plans for staffing the borders on Wednesday
On Sunday Francis Maude suggested that the army could play a part in the contingency plans on Britain's borders sparking headlines suggesting that troops could man the borders. Last week Maude came under scrutiny for suggesting that people could lose their jobs as the economy suffers a �500m blow from the strikes ? a claim immediately questioned by economists.
However, in this case it seems as if it's the media that was rather over enthusiastic in the interpretation of Maude's claims.
As the Guardian correctly reported yesterday the army will only be used for crowd-control and not passport checks. The Guardian's home affair's editor Alan Travis writes:
Using the army to help out at the ariports on Wednesday is one option being considered but they will not be used to staff the border checks. The Home Office say they have not put the army on notice or standby and the Ministry of Defence say no official request for help has been made. To carry out border checks troops would need to have security clearance and have undergone a two-day training course with access to live Home Office databases of watchlists. Whitehall sources say if they are used at all it is most likely in a role of providing staff for the arrivals halls to help keep the expected queues in order.
Union claim: the reforms will trigger a mass opt-out of pensions
Unions are arguing that the contribution rises, along with a whittling away of the quality of pensions, will prompt a mass opt-out from the schemes. This argument has been particularly applied to the local government scheme, which is the only one of the main public sector scheme which is funded meaning that unlike the majority of pay-as-you go public sector pensions it has a fund which is invested and out of which pensions are paid. The unions argue that if enough people opt-out this scheme will collapse with catastrophic consequences for the pension funds.
Analysis
I've spoken briefly to a Treasury press officer who confirms that they were concerned about people opting-out and that there is evidence that worsening pension conditions will prompt people to leave it. That is why they moved to protect the lowest workers, those earning below �15,000 from the reforms. This means that 15% are exempted from the extra contribution payments ? most of them work in local government.
However the GMB says that their surveys suggest that 55% would opt out if the deal goes through. It is very hard to know from that survey whether people would really follow through with their threat to leave the schemes. I've asked the Treasury whether they have any modelling on how many people might leave the schemes.
The Office for Budget Responsibility, which was set up to forecast the economy independently of the government, predicted in March that the impact of the rise in contributions would be an opt out rate of 1%. It said:
It is possible that a small number of individuals will choose to leave their pension scheme as a result of these changes, though given the generosity of the schemes there is little economic rationale to do so, and policy will be designed to mitigate these impacts. This costing assumes an increase in the opt-out rate equal to one per cent of total paybill.
The unions also raise the question about what happens if people do opt-out of public sector pensions en masse creating, in the journalistic jargon, a "timebomb" of pensioner poverty leaving more people without a pension other than the basic state pension when they retire. Currently, 65.6% of private sector employees have no pension compared with 16.1% of public sector workers. Several people through this blog have asked for an analysis of the costs of public sector pensions compared with coping with pensioner poverty in the future. I've not yet been able to find rigorous independent evidence of this. Can anyone else? Do get in touch.
The government's promise to protect the lowest paid - those earning under �15,000 - to avoid people opting out only applies to full-time workers. People who earn less than �15,000 because they work part-time are not protected. A significant number of people who earn less than �15,000 therefore do have to pay the increase.
Initial verdict
There is evidence that people will opt-out of public sector pensions if they get too expensive or the rewards diminish too far ? as has happened in the private sector since the 1980s. In the local government scheme if this was widespread it would be particularly disastrous trigger a collapse of the pension schemes. The government has acknowledged the risk and protected lower paid workers. However, it is not clear whether the current deal being negotiated is bad enough to prompt people to abandon their pensions. The OBR predicts a 1% opt-out rate, though it has not given details of how it arrived at this figure. It stressed that the scheme is still popular and the government has designed it so as to avoid people opting-out, particularly through protecting lower earners. If people do opt-out, there will be additional costs to the state if more people retire without pensions.
What's the pensions shortfall?
Below the line @PistolPete72 makes the point that several others have raised with me. He writes:
The Hutton Report, on which the government is basing its case, stated that there was an increasing shortfall between contributions and pension - rising to �9 billion over the next few years. But the Unions state that schemes are fully-funded, and in some cases, for example the NHS, actually net contributors to the Treasury. Which is true?
The local government scheme is a funded scheme ? workers and employers pay into funds, which are invested and built up (or down) ? and then pay out when people retire. The other schemes are largely unfunded "pay-as-you-go" schemes, which means employers and employees pay their contributions to the government, which then pays the pensions separately. But there can be a short-fall or an excess in what's going in compared with what's being paid out. When there is a short-fall the government steps in and tops up the payments.
The following table shows each of the pension schemes incomes (broken down by employer/employee) and outgoings. It is form the Office for Budget Responsibility March forecast available here (Table 2.14).
This shows that this year the civil service pension scheme will be in deficit by �2.1bn; the teachers pension scheme in deficit by �3bn; the armed forces in deficit by �1.6bn; the judicial pension scheme will be balanced; and the NHS pension scheme will be �1.8bn in profit.
I've just asked a press officer at Unison, which represents mostly NHS and local government workers (who aren't included in this table but whose schemes are also largely in profit) about the NHS profit and she told me:
We say that this scheme is viable and this proves that. It was renegotiated four years ago to ensure it was sustainable. We said at the time that if changes needed to made and more money needs to be paid in we would look at that. There is a cap and share arrangements which means employers wouldn't pay more than 14% and the employees would step in if the fund needs topping up. The proposed increase of three percentage points is completely unnecessary for our schemes and all it is is a tax on NHS workers - none of that money will go into the pension scheme. The same is true for the local government scheme, it isn't in deficit. It could pay out liabilities for 20 years even if it didn't save a single penny more. It's in profit by �5bn.
On the NHS scheme the Treasury points out that by 2015-16 the surplus is reduced to �200m and that the reason it is in surplus is that there is a larger number of employees now paying in than there are receiving pensions. But those people paying in will ultimately have to receive a pension and unless the NHS carries on growing it cannot remain in surplus.
Unison represents only NHS and local government, the two schemes in surplus. I asked them whether their argument justified the opposite ? that it is legitimate to ask members of those schemes in deficit to pay more to make up the difference. They didn't want to comment as the other schemes do not affect their members but I've contacted a teachers union and civil service unions ? those that are in deficit ? to see what they think.
I've just been speaking with Kevin Courtney, deputy general secretary of the National Union of Teachers who has been involved in all the negotiations with the government. I asked him to explain why it's fair for the taxpayer to make up the current deficit in the teachers' pension scheme. He said:
It's true and we've never said otherwise, that at the moment more money is being paid out than paid in and the Treasury in that narrow sense is subsidising the scheme. We've also looked at the scheme across it's lifetime and accounted all the money paid in and out. �46bn paid more has been into the treasury than has been paid out. Long term it's �46bn in credit. In current years it's in deficit and next year it will probably be in more deficit because pensions will have gone up by CPI but because there's a pay freeze the contributions won't go up. So it will look more like it's in deficit. That makes the point that you can't look at them on a short term basis. You have to look at them in the long-term. Long-term the NAO and Hutton both say the schemes will become more affordable.
I think all the unfunded schemes taken together have a global deficit of around �4bn a year ? clearly a lot of money but it has to be looked at long-term. The amount in tax relief contributions for the 1% richest in the country ? people earning �150,000 and up - on their pension contributions per annum was �10bn. That puts it in context.
You can read more about the NUT's workings on the longterm �46bn profit of the teachers' pension scheme here.
The point on affordability that Courtney makes, referring to tables in both the Hutton report and National Audit Office publications, is one of the most contested aspects of the row between the unions and the government, which this blog got caught up with last time it looked at it here.
Below the line, several readers have asked me to look at the affordability question again and the debate centres on this graph, from the Hutton report, showing that as a proportion of GDP the cost of public sector pensions is set to fall.
Last time Reality check looked at it, Hutton told me that the graph already took into account many of the changes in the government's proposals but he later told Channel 4's Fact Check blog that this was confused. He said it didn't in fact include the latest changes but it did include the Labour government's pension reforms. Hutton still insists that because of all the uncertainty of life expectancy the current system must be reformed to make it sustainable. Hutton said at the time that unions were "placing too much confidence in figures we know by every precedent are unreliable", adding:
I don't think we should gamble taxpayers' money over that period of time on a bet like that. There is no question that, if longevity keeps rising, retirement age will have to rise. My argument is: make the savings sooner. Are we prepared to wait 30 or 40 years to get to a sustainable balance? My reforms will bring the curve of the line down more quickly, and I think that will be a good thing.
Jill Insley's pensions glossary
Defined benefits pension (also known as a final salary scheme) An employer-sponsored scheme where the eventual retirement income is based on your earnings, length of employment and the scheme's rate of accrual. The circumstances under which you take your pension ? at retirement, as an early leaver, or through ill health ? could also affect the income you get.
Defined contribution pension (AKA money purchase scheme) A pension plan where the eventual retirement income is based on the amount of money paid in and the amount by which that money grows. There are several different types including company, personal, stakeholder, self-invested and group personal pension plans. The resulting pot is usually used to buy an annuity ? an insurance contract that pays out regular income.
Accrual rate This is the rate at which you build up pension benefits while a member of a defined benefit scheme. The rate is multiplied by your earnings to calculate how much money you will eventually be entitled to. It is typically expressed as a fraction, and the bigger the fraction the more pension benefit you will get. So a 1/65th rate ? as proposed by the government for public sector workers ? would generate more benefits for the scheme member than the current typical rate of 1/80th.
Annuity This is an insurance contract that pays out a regular income, either for a set period of time or until you die. It is usually bought with the money from your pension fund. The income it will provide will depend on a number of factors including your age when you buy it, whether or not you're a smoker, and annuity rates at the time of purchase.
RPI The retail prices index is a measure of inflation published each month by the Office for National Statistics. It measures the change in cost of a basket of retail goods and services, including housing costs. Until April 2011, RPI was the principal measure of inflation used by the government when calculating by how much public sector pension payments should rise (this change is currently being contested by unions).
CPI The consumer price index is the government's preferred measure of inflation since 2003. It measures a basket of retail goods and services, but it excludes certain costs such as council tax, mortgage interest, building insurance and house depreciation that are included in RPI. CPI, which is the measure the government now uses to calculate increases in pension payments, has been lower than RPI since January 2010.
Annuity rate The rate of return you get when buying a pension income with the money you have saved in your defined contribution pension scheme.
Final salary scheme This is the type of pension scheme the government wants to move public sector workers away from. The pension paid to members is based on their salary at the point of retirement, the number of years they have belonged to the scheme and the accrual rate. It particularly benefits employees who salaries rise steeply towards the end of their careers.
Career average scheme This is the type of pension scheme the government wants to adopt for public sector workers. A notional percentage of the employee's salary is put aside each year ? the calculation is based on multiplying the employee's earnings during that year by the accrual rate. At retirement, the cash value of all these notional amounts is added up to produce the annual pension the employee is due. The averaging effect means this type of scheme generally produces smaller pension incomes, particularly for those who get big salary increases towards the end of their career.
Group personal pension A collection of personal pension plans provided by an employer for its employees. Contributions are deducted through payroll, the employer may make contributions on behalf of the employee, and the scheme charges may be lower than those of an equivalent straightforward personal pension because the company providing the scheme is able to offer a reduction for bulk business.
Stakeholder pension A pension scheme designed to incorporate a set of minimum standards set out by the government. Charges must be capped at 1.5% a year for the first 10 years and 1% thereafter; there can be no penalties for altering or stopping contributions or transferring the benefits to another scheme; and investors can contribute a minimum of �20 a month. Stakeholder pensions are available on a group or individual basis.
The Hutton report Lord Hutton, the former Labour work and pensions secretary, was commissioned by the coalition to review pensions ahead of their proposals. Essentially, Hutton argued that public sector pensions are not "gold-plated" and that they should keep their defined benefit scheme but move to a less generous "career average scheme". Retirement ages should increase and contributions go up to ease the pressure on the public purse. Hutton argued that the current system was not sustainable and the cost would have to be brought down. The government largely based their current offer on this report.
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