Ross Clark on the workers who milk the rest of us by retiring early as a result of ‘ill health’
The next few months may well see the political death of Tony Blair. But whether he will get buried is another matter. In an echo of the public-sector bolshieness 27 winters ago that eventually brought down the Callaghan government, public-sector unions have renewed their threat to stage a national strike over proposals to raise their normal retirement age from 60 to 65. A month ago Alan Johnson, the trade secretary, appeared to buy off a strike by agreeing with the unions to exempt all existing public-sector employees, even newly recruited 18-year-old postmen, from the need to work until 65. But it now seems that Gordon Brown, who has spent much of his time in office hosing money at public servants, has balked at the consequences of such a deal when life expectancy is rising so quickly.
One thing is for sure: public-sector trade unionists who threaten to let rubbish go uncollected and the dead go unburied can expect even less public sympathy than they received in 1979. The unions’ argument, swallowed by Alan Johnson, was that a retirement age of 60 is in effect written into the employment contracts of existing public-sector workers and therefore cannot be broken. But, if so, surely the same would apply to the state retirement age, which has been set at 65 for decades: is that not also written into the government’s contract with taxpayers? It would seem not: the government has already proposed to lift it to 67. Lord Turner, whose report on pension reform is due to be published just after The Spectator has gone to press, is expected also to suggest raising the retirement age to 67, but to compensate pensioners with higher pensions from then on. The government sees no such need to make any compensation for a later retirement age: its present policy is simply one of robbing private-sector workers to pay for the public-sector workers to continue to bunk off at 60.
Or rather earlier in many cases. According to the Pensions Policy Institute, an independent research body, 39 per cent of local government officers, 25 per cent of teachers and 22 per cent of civil servants do not see in their 60th birthdays at their desks: they retire even earlier, on a generous pension, ostensibly due to ill health. Similarly, 68 per cent of firemen take early retirement due to ill health before their official retirement age of 50, and 49 per cent of policemen take early retirement before they reach their official retirement age of 48. In fact, the only public-sector workers who seem to manage to work to their official pensionable age are members of the armed forces, just 6 per cent of whom take early retirement due to ill health. In other words you can be shot at, made to bivouac in freezing conditions, be starved on the battlefield, not to mention buggered with a broomstick at your initiation ceremony, and still have a 94 per cent chance of making it through to retirement. Spend a lifetime processing planning applications or managing wheelie-bin collections, on the other hand, and you have only a 61 per cent chance of making it through to retirement.
One ought to make some allowances. No doubt local government and the Civil Service offer greater employment opportunities to the chronically unwell than does the army, and therefore might be expected to suffer a certain attrition rate from that. A few local government workers, such as benefit-office staff in the Gorbals, might possibly be at greater risk of battle injuries than a squaddie patrolling in Basra. Perhaps the work of dreaming up and enforcing petty regulations is so dispiriting that it is harming the health of all these public bureaucrats (in which case I don’t think many would object if it were banned under health and safety at work legislation). But on the whole I think it is unlikely that any of those possibilities fully explains the poor record of civil servants and local government officers finishing their careers without crying off sick. After all, if government workers genuinely suffer so much sickness during their working lives, one might reasonably expect them to suffer higher rates of mortality in retirement. But, strangely, they don’t: rather the longevity figures produced by the Office of National Statistics consistently show that the clerical and professional classes outlive all others. Somehow, in other words, many of the pen-pushers who take early retirement due to ill health manage to stage a good recovery in retirement.
There is of course an alternative explanation for the early retirement of public-sector workers: they have a tendency towards malingering. As one who has worked in personnel in local government remembers, ‘On any given day 25 per cent of the staff in the nurseries would be off sick. Among the social workers, skiving had become so endemic that they had come to treat 40 days a year off sick as a right. As for the caretaker of one council block, he was off work for months, supposedly sick, until he turned up on the television — fighting in the Yugoslav civil war.’
It is a tale that will be recognised by anyone who has had dealings with local authority employees. One whom my wife has been trying to contact for several weeks has, according to his employers, gone off unexpectedly on his houseboat. In any private-sector organisation, going Awol for several weeks would be treated as a resignation, but not in the public sector: my wife has been told he should be in touch when he surfaces from the nation’s canal system.
It is a conceit of the unions that their guaranteed, final-salary pensions are a just reward for the lower salaries in the public sector. But public-sector workers don’t have lower salaries — not any more. Thanks to several years in which public-sector wage inflation has greatly exceeded that in the private sector, the median public sector wage, at £18,185, is very close to the median private sector wage, at £18,345. The difference is that the superior pension arrangements enjoyed by public-sector workers, according to the Pensions Policy Institute, effectively add an extra 5 to 20 per cent to their wages.
Even raising the retirement age of public sector workers to 65 would do little to alter this advantage: public-sector workers would still enjoy an extra hidden 3 to 18 per cent in remuneration. Public-sector pensions are vastly superior because they are ‘defined benefit’ schemes, where the eventual pension is calculated on the pensioner’s final salary, while most private-sector pension schemes are now ‘defined contribution’ schemes: i.e., what you get out at the end depends on how well your invested pension fund has performed. Moreover, whereas private-sector pensioners, together with their employers, pay the full cost of funding their pension schemes, it is future taxpayers who will pay the pensions of public-sector workers.
Some private-sector pension funds used to operate in the way in which public-sector pensions still do. The most obvious example was the Equitable Life which, in the 1960s and 1970s, made promises to pay its members a guaranteed income in retirement. Thanks to increasing longevity it was eventually unable to sustain the payments, with the inevitable result that it went bust. It is not too hard to think of scenarios in which the public finances could go the same way. The Chancellor has made some attempt to convince us that public-sector pensions are affordable: in 2003 he projected that future liabilities will cost taxpayers £425 billion at current prices. But it is meaningless to be so precise and look so far ahead: one might as well produce a weather forecast for the year 2055. Tiny changes in the parameters used for the calculation will have dramatic consequences for the result: change the assumed average gilt yield over the next few decades by a small percentage and the liability rises to £690 billion. Things might possibly work in the government’s fa
vour: when today’s young binge-drinkers and coke-snorters reach old age, life expectancy may well begin to fall again, relieving the public purse of pension liabilities. Then again, a cure for cancer might be found, the birth rate might fall or the economy might undergo deflation, increasing government debt in real terms.
In contrast to the impossible business of predicting liabilities 50 years ahead, there is a quite simple way for the Chancellor to balance his pension books: shift the risk from the taxpayer to future pensioners. If private- sector workers have to go through their careers never knowing quite how much money they will have to retire on, why can’t civil servants? You can be sure that is what will eventually be forced upon the government. The only question is whether the country goes bust first.