Civil servants paid less than private workers but still better off thanks to generous pensions

10th October 2014

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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.’

 

8 thoughts on “Civil servants paid less than private workers but still better off thanks to generous pensions”

  1. Noo 2 Economics says:

    “When the pay and pensions deal is taken into consideration, public
    sector workers are 17% better off than their private sector peers.”
    And as John Maynard Keynes said “in the log run we are all dead” so let’s hope those public sector workers live long enough to enjoy that pension……

    1. David Lilley says:

      Noo,
      There seems to be only you and me commenting on these pages.
      May I interject some possibly doubtful internet data on the gap between public sector and private sector compensation. This data is available to think tanks but think tanks generary reflect and give added weight to the positions of their sponsors. That is why they sponsor them.
      1. Policy Exchange calculated that the total remuneration of the public sector employee was 44% greater than the private sector worker doing the same job some three years ago. This was due to combination of less hours, 8% higher pay, more holidays, earlier retirement and better pension provision.
      2. Some reports stated that the private sector worker would have to put 35% of income into pension for the whole of his working life to match the public sector worker’s pension.
      3. One in five UK workers work in the public sector and before we had the WGA many estimated that public sector pensions liability was three times the ONS estimate of Nationl Debt. The estimate for the 1.3m NHS workers alone was £1.5t prior to the WGA.
      4. Public sector pensions reform has resulted in a reduction in the public sector pensions liability to the numbers disclosed in the latest WGA (just google WGA). You have kindly informed me of these reforms and I have informed you of how many gain the system.
      5. Despite the reduction of 600,000 heads in the public sector the wage bill has only risen. Birthday rises has been a significant factor. For many in the public sector you get two pay rises pa, one general increment and one for being a year older. Unheard of in the private sector.
      6. The WGA identifies that pay in the public sector is now 14.37% higher than the private sector and up from 14.05% the previous year.
      7. The strike action is about the limiting of pay rises to those not getting birthday rises. And about time too. Low income earners in the public sector have been protected from austerity cuts. Indeed, low income earners across the land have benefitted from the reduction in the tax threashold. None have to pay a cent towards the education of their children or the NHS.

      1. Noo 2 Economics says:

        Hi David,

        Yes, the other posters on Shaun’s blog who commented occasionally on other items seem to have forsaken this site now simply following Shaun. For myself it is still worth a read.

        Firstly I don’t know what the WGA is so googled WGA and got a load of nonsense about the Writers Guild of America etc but nothing that looked like a
        financial analytical organisation to which I guess you are referring, could you tell me the full name please as I should like to see their research and evidence to back up their conclusions.

        For me, I can speak authoritatively on all things public sector as I have stated in the past I am an ex public sector employee (prior to that I was a private sector employee) who secured a redundancy in 2007 which I had to fight tooth and nail for. Consequently, I have many ex colleagues I keep in touch with to monitor developments in public sector
        at the coal face rather than the garbage spouted by the MSM, with public sector pensions being my speciality as I have 23 years service in and
        keep a close eye on what the Government is getting up to with my pension, should I live long enough to actually receive it.

        Following my release from prison, excuse me, the civil service, I set up in self employment and as I was saying to a friend on Saturday would never return, so I don’t get all this “it’s so easy in the public sector
        garbage”. My response is if you think it’s so easy get your arse into the public sector and find out just how “easy” it is!

        Now, to specifics:

        The reports you talk about, as you say seem doubtful and conflict with each other as does this report we are commenting on. Policy exchange come up with an arbitrary number of a 44% advantage based on:

        1. less hours (that would be 37 per week as compared to my self employed 40 hours a week or my neighbours 36 a week in private industry!!)

        2. 8% higher pay (that would be why DWP in Warrington and Child Support Agency in Birkenhead are losing their lower paid staff to private sector for “pay” reasons and are currently in a continuous recruitment mode). It’s difficult to compare the work of my company with the DWP where I worked, as it is a technical but manual job but trying to do that: I pay about 20% more than I would expect to pay if they were Public Sector workers (although I wouldn’t employ the majority of people I worked with in the Public Sector on efficiency grounds but that is no excuse for lower pay – if they’re not good enough you retrain them, give them time to improve and if still not good enough sack them on inefficiency grounds)

        3. more holidays – I don’t know about private sector but what I do know is that you get 22 days paid holiday a year with 10.5 public holidays on top which rises to 30 days paid holiday a year after 10 years. This compares to the 20 days and 8 days respectively I give to my guys, although, if we’re talking corporate private industry which I think we have to, to get anything that vaguely compares to the size of the Civil Service/Public Sector, my private industry corporate friends tell an identical story to public sector holidays with the exception of public holidays being 8 days a year.

        4. earlier retirement and better pension provision – point taken in respect of any Public Sector worker who started before August 2007 but flat wrong on any Public Sector worker commencing employment after July 2007 -they will be entitled to their pension at State Retirement Pension Age which is currently 66 – 67 depending on your age and which will continue to rise. In terms of “better provision” what does that mean exactly? My private industry corporate friends enjoy final salary schemes based on 1.65% of final salary for each years service although this closed to new private industry corporate employees whilst my Public Sector ex colleagues enjoy final salary schemes based on 1.25% of final salary for each years service -AHEM!! Maybe they are talking about widows and dependants payments and death in service benefits available in Public Sector and the provision of which I have no idea in the Private Sector???

        You say some reports state a private sector worker has to put 35% of their pay into a pension to match Public Sector pensions. Did you know that DWP/Civil Service workers pay is held down by 26.5% to take account of the “value” of the employer’s contributions into their pension? And that’s before we get into the 1.5% that employees have deducted in respect of widows and dependants pension making a total of 28%. I have my old pay slips to prove this but will not be publishing them on the net.

        I don’t give a toss about pension liabilities – I didn’t ask the Government NOT to invest my “contributions” (i.e. that amount of my pay that was withheld to take account of the value of my pension that may be provided). Equally, if I was given all my pay and told to arrange my own pension provision and I just spent everything (as the Government has) I wouldn’t come whingeing and wining to you when retirement came upon me. In other words the Government got it self into this and it is up to the Government to get itself out, there was no coercion from civil servants forbidding the Government from investing all those contributions, the Government chose not to invest and depend on a fantasy of ever increasing tax revenues to fund Public Sector pensions – a scheme, the scale of which makes Charles Ponzi look like a rank amateur!! But again – NOT – MY – FAULT!!

        What is your information source re “birthday rises” They were abolished in the DWP (which currently employs 65000) for all but the lowest paid in 2007 – I WAS THERE! Nor have they been re-instated.

        NI contributions allegedly fund the NHS and Social Security System and start at £111 per week on a paye basis currently so it depends on how low you are going when you say people on low pay don’t pay a cent towards these things.

        Again, I should like to see these WGA stats re pay levels including:

        1. A list of job duties of each comparator in the Public Sector and the private Sector so I have assurance of the accuracy of comparison

        2. Total pay including bonuses and hours worked per year.

        3. Type of Pension scheme and all benefits accruing from it like calculation of pension entitlement, any life insurance attached to the [pension, any widows and dependants pension entitlement etc

        Somehow, as has been a depressingly familiar experience in my time in self employment I expect to see just a shallow suck your thumb stick it in the air and see set of calculations, which is why I’ve been making so much money as I am afraid that your average Private Sector Joe has no depth to them and consequently under calculate health and safety risk which results in a calamity, which is where my company gets called in to sort out the mess and I find myself sitting in on numerous meetings of various companies in a consultative capacity as a condition of their continued Public and Employee liability insurance where I am continuously amazed at the scale of shallowness of management boards who consistently fail to see the risks inherent in their operations. But what do I care? They have to pay me a fortune to tell them what to me is the bleedin obvious!

        I have just come from such a meeting earlier today when I could have been out helping my guys neutralise a chemical spillage with side effects of 3 poisonous gases being created which had to be contained and doing what I consider to be “real work” instead of poncing around in another Board Room meeting. Said spillage happened because the idiot manager at the company we were called out to didn’t understand the toxic capabilities of the chemicals they were storing and therefore didn’t know how to safely store them – Oh well, that will be another company whose meetings I’ll have to attend (well paid of course) if they wish to continue with their Public and employee liability insurance. So, David, I am immensely underwhelmed by the “quality” of private sector management and employees and can honestly say there seems little difference between their effectiveness at their jobs and the effectiveness of their Public Sector counterparts except they are paid more money, in my experience any way.

        1. Jer says:

          There is one factor you are forgetting.
          I don’t have to pay the wages of an imbecile in private industry, unless I choose*.
          That doesn’t affect the argument above, as to whether it’s true or not that the public sector is overpaid, but it is the reason people actually care, so can’t be discounted.
          *Arguably I have paid the wages of numerous imbecile/criminal bankers, do they still count as private sector though?

          1. Noo 2 Economics says:

            Thanks for reminding me – you are right of course but equally you do have to pay the wages of an imbecile in private industry if you choose to buy e.g. the paint made by a certain manufacturer whose facility we were making safe yesterday as it was an imbecile who chose to store reactive chemicals incorrectly and next to each other. Part of the money you spend to buy that tin of paint goes to the imbecile’s wages.

            Today I have had the “pleasure” of attending yet another meeting which was an inquiry into the incident with representatives of Health and Safety Executive and the company concerned. The company was adamant that it was”one of those things” and “couldn’t be foreseen” in spite of the report I furnished making it crystal clear as to correct procedures to follow and what had not been followed. The only “unknown” was whether it was staff or management inefficiency (although in my book the responsibility always lays with management – that’s what we get the big bucks for) but it was clear the company would take no action against any personnel although it accepted it had to improve it’s procedures, so the imbecile(s) continue in employment and whoever buys that manufacturers paint unwittingly pays the imbeciles wages.

            I take your question to be rhetorical but just to leave no doubt, Lloyds group,what’s left of Northern Rock, RBS and Nat West became Public Sector when they were bailed out with Public funds and remain Public Sector if/until they repay their bailout loans and stand on their own 2 feet and yet I hear very little complaint about these grossly incompetent organisations and their diamond encrusted pension schemes as most people labour under the mis-apprehension that they are still in some bizarre way “Private Sector”

            It is of course up to Public sector management to ensure they employ efficient staff and for politicians to ensure management do their job effectively and indeed, that pension contributions are invested instead of squandered on cheap loans to banks, so maybe you need to have a long in depth chat with your MP about his/her responsibilities.

        2. David Lilley says:

          Noo,
          Thank you, you always reply. And you always know what you are talking about.
          1. The WGA, Whole of Government Accounts, is a 204 page document available on the internet. I refer to it as a modern Doomsday Book. Like the OBR it is independent. It is produced by accountants so every number is accurate to the $. Only accountants could put quantum on the public sector pensions liability and PFI. Both are less than we questimated when all these numbers were secret. Prior to the WGA the conservatives had been trying to establish the quantum of PFI using the Freedom of Informtion Act. PFI is off-balance sheet accounting that was hidden from the National Debt and has bankrupted two NHS Trusts.
          2. The WGA is a team of accountants combing through the annual accounts of 38,000 gov funded bodies; army, navy, councils, police … It forces these bodies to get a grip on profit and loss/assets and liabilities. It is a massive professional audit that has discovered where all our money goes, how much is wasted and since its inception it has brought professionlism to 38,000 institutions saving a lot of our money.
          3. The Policy Exchange work on public/private remuneration differential is now some 3/4 years old and there have been many reforms since then, some, as you state going back to 2007. The WGA reflects all the latest reforms.
          4. I wouldn’t for a minute disparage the public sector worker or his work. Nor the private sector worker. We did have a mangement problem but I am sure that most managers did an excellent job. I could list many dissaters in the public sector due to bad mangement; North Staffs hospital and others, the £30b MoD black hole. And, nearer to home, the DWP employees doing nothing for two weeks because the computer was down. The WGA will do more than the NAO to prevent such future occurrances.
          5. There are lots of workers on low pay. 40% of the 1.8m new jobs are self-employed and I beleive that 32% of these will earn less than £10,000 pa. Whilst not receiving JSA they will still be on some benefits such as WTC and housing benefit. We should talk of the median salary and not the average salary. We should also remember that 80% of new businesses fail.
          6. We have just learnt that 55% of the 1.3m NHS staff receive what I call birthday pay. I can see the benefits and the downsides of progression-in-job pay. The bottom line is that it still exists.
          7. You didn’t address the issue of there being 600,000 less public sector workers since 2010 but the wages bill has only increased.
          Dave

          1. Noo 2 Economics says:

            Hallo David – thanks for the reference, a weighty document I intend to read over the next couple of weeks.

            A further check and I see progression pay does indeed still exist in the NHS so possibly elsewhere, which would go someway to

            explaining an increasing wage bill along with the pay rises MP’s have voted themselves and I intend to check this carefully – I suspect but currently have no evidence to back this up, that all employees of bailed out banks are, or at least should be considered “Public Sector” as they are now “owned”by the Government, consequently, their costs(wages being but one cost) are backstopped by the Government and need to appear in Public Sector accounts. If this is happening then the continuing astronomical rises in bank employees pay despite their continued failure would provide the rest of the explanation for increasing public sector wage bills.

            In the final analysis, if an employer doesn’t pay enough, be they Public or Private Sector they won’t attract enough employees of the correct calibre and will fail.

            In my case, I came to the conclusion both Public Sector and Corporate Private Sector management sucked and felt I was already doing a better, unrecognised job than my “superiors” and was therefore being significantly underpaid. So I left and if my earnings since leaving are anything to go by it looks like I was grossly underpaid.

            This is the final test – employers who can’t keep staff (like the DWP) due to poor pay/ poor management style or archaic employment policies, simply cease to function and all the moaning in the World about “high Public/Private Sector pay, pensions and working conditions won’t stop that.

      2. Noo 2 Economics says:

        David,

        Whilst I am still in a rage about events my company had to deal with in the last 2 days and this has turned into a rant on my part I should still like to see this “WGA” stuff – full name of WGA please.

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