10th October 2014
The pay gap between private and public sector employees has reopened but civil servants’ generous pensions means they are still better off.
A report from the Institute for Fiscal Studies shows that private sector pay is likely to rise faster than wages in the public sector over the next four years. The think-tank said the gap between public and private sector workers, which was closed during the recession as private sector wages dropped, has now reopened as public sector pay has remained static and private sector pay increases again.
However, wages are not the full story as public sector workers are better off than private sector workers when pensions are taken into consideration. It said a ‘large majority’ of public sector workers are members of defined benefit (DB) pension schemes while only 12% of private sector workers are part of these gold-plated pensions, which pay out a multiple of final salary and years worked in retirement income until a member dies.
Most private companies now operate defined contributions (DC) schemes where the outcome is reliant on employee contributions and stockmarket returns.
The think tank said ‘on average across public sector workers this [DB] pension was worth about 19% of pay in 2011’. When the pay and pensions deal is taken into consideration, public sector workers are 17% better off than their private sector peers.
Jonathan Cribb, a research economist at the IFS, said: ‘The biggest differences between public and private sectors remains the value of employer contributions to public service pensions. These are on average, much more generous in the public sector than in the private sector.
‘Over the last 15 years, changes in the gap between total remuneration in the public and private sectors has been driven more by the changing value of pensions rather than headline pay. Pay and pensions need to be considered together.’
The report also identified that women benefit more from public sector roles, receiving 8% more pay than if they were working in the private sector while there was no significant difference for men. Those with low wages and low levels of qualifications are also better off in the public sector, while higher earners and those with higher qualifications can earn more in the private sector.
The IFS said there was ‘some evidence that the size of the public-private sector pay gap has implications for the ability of the public sector to attract and retain workers with particular qualities’.
Commenting on the report, Frances O’Grady, general secretary of the TUC, said: ‘The pay squeeze looks set to go on and on, which will not only make public sector workers suffer further years of cuts in their living standards, but also hit the quality of the services that bind our society together.’