Teachers face far less pension pain than private sector peers

Savers are too often told during periods of market volatility that their pensions are being ruined as millions are wiped off share values. And while scaremongering can be misleading and dangerous, it does help remind us of the extent to which, in the private sector, the investment risk in pensions is now borne by individuals, rather than employers.

That reminder comes as Scotland’s teachers threaten to strike over reforms to pensions that still protect them from that investment risk. There are grounds for feeling aggrieved about the proposed changes to public sector pensions, not least an increase in contribution levels.

But while no-one likes to hear that they face paying more for their pensions and working for longer – particularly at a time of wage freezes – those calling for strikes are exploiting a stark lack of awareness in the public sector of what’s actually happening with their pensions.

The Educational Institute of Scotland (EIS) claims that hard-pressed teachers face paying more into their pension and working longer. Yet contributions are expected to rise by just 0.6 per cent of pay for those earning less than £26,000, an increase that will be mitigated to some extent by tax relief.

There will be no rise in pension contributions for those on £15,000 or less and the steepest increases will be reserved for the best paid public sector workers.

They are also being let off the hook to some extent by retaining a pension system based on salary – career average earnings – rather than on contributions and investment performance, as many had feared when the government commissioned a review of public sector pensions.

Some lower paid public sector workers will actually be better off in the long run.

In short, public sector workers will continue to get a far better pensions deal than the vast majority of private sector workers. The last thing we need is a race to the bottom, because much needs to be done to improve private sector pensions. As the recent Workplace Retirement Income Commission chaired by Lord McFall concluded, people in the defined contribution pensions that are dominant in the private sector “are being left to carry all the risk of funding their retirement. They are often confused by investment choices, and are at the mercy of stock markets.”

As the report noted, the government has to find ways of easing this burden. But the burden should be borne in mind by those in the public sector who fail to appreciate just how much better they have it. As Scottish teachers edge nearer to strike action, a bit of homework wouldn’t go amiss.

THE end of summer – or what passed for summer – could spell more bad news than is immediately obvious. That’s because if the economy really is going to tank, history suggests that we should be particularly nervous about the coming weeks.

Why? Ask yourself what unites the 1929 Wall Street crash, the 1971 demise of the Bretton Woods currency system, the Black Monday market crash of 1987, the 1992 ERM break-up, the ruble default in 1998, the run on Northern Rock in 2007 and the Lehmans bankruptcy of three years ago. Yep, they all happened in the period between late August and late October. And that’s an abbreviated list that doesn’t include other events that triggered financial shocks, not least the attacks on America a decade ago this week.

Just saying.

THE valuable role played by Citizens Advice is highlighted again today in our story on pages 10 and 11. When other organisations leave people high and dry – whether it’s a bank, government agency, payday loan firm or a debt management company – the free support provided by the likes of Citizens Advice and the Consumer Credit Counselling Service proves crucial.

As Anne Buchanan points out, however, the growing pressure on their services is giving fee-charging alternatives their chance to exploit the desperation felt by struggling families. Alarmingly, government funding for these vital charities is being squeezed. There are several ways of tackling the scourge of loan sharks and the worst elements of the payday loan and debt management sectors, and boosting access to free services is perhaps the most powerful. Fail to do that and thousands of people will be paying the price for years to come.