The "great pensions divide" - it isn't what you think

Mehdi Hasan on today's pensions strike.

As public-sector workers, including teachers, go on strike today, the (right-wing) papers are filled with anti-union, anti-public-sector-pension headlines and stories. The Daily Telegraph, on its front page, claims that "a mid-ranking teacher on £32,000 a year will receive a final salary pension that is the equivalent of having built up a £500,000 pension pot. This is 20 times higher than the average private-sector scheme, according to figures from the Office for National Statistics."

The Daily Mail headline is:

Great pensions divide: private-sector staff must put in a third of their pay to match state worker benefits.

But the "divide" isn't between private sector and public sector -- as usual, it's between the rich (including newspaper editors!) and the rest of us. Most papers conveniently chose to ignore a report from Income Data Services, published yesterday, which revealed a "widening gap" between the boardrooms and workers.

Thankfully, the Guardian didn't:

Directors in Britain's top 100 companies have accumulated final salary retirement pots worth £2.8m on average, according to figures that reveal a widening gap between the pensions awarded to boardroom executives and the shop floor.

Incomes Data Services (IDS) said about 46 per cent of FTSE 100 directors were still accruing final salary benefits in generous schemes that typically pay two-thirds of final salary as a retirement income.

A pot of £2.8m could buy an employee a pension annuity worth more than £170,000 a year, IDS said.

Using the Telegraph's aforementioned ratio, directors' pension pots are worth more than 100 times as much as the average private-sector scheme. The Guardian report continues:

Company directors, like MPs, have among the most generous schemes in the G20 group of richest nations, with guaranteed benefits worth two-thirds of final salary accrued at an accelerated pace. Many directors can earn their full pension after only 20 years service, while it takes MPs just 26 years. Most workers take between 35 and 40 years to accrue a full pension.

Meanwhile, a letter in today's Guardian reminds us of TUC research in 2009 outlining how:

. . . tax relief on pension contributions of £37bn is heavily skewed towards the better off. Treasury figures show that 60 per cent of tax relief goes to higher rate taxpayers, with 25 per cent going to the top 1 per cent of earners.

Where is the anger? The outrage? Where are the headlines bemoaning "gold-plated" pension schemes in Britain's (failing) boardrooms? As Mark Serwotka, the leader of the PCS union, has rightly pointed out:

It's not public-sector workers who exploit [private-sector workers] but their private-sector employers.

One final point: can we, once and for all, nail the right-wing lie that public-sector pensions are "unaffordable"? The cost of public-sector pensions is set to fall in the coming decades. Don't believe me? The Hutton Report, commissioned by the coalition government and used by ministers as a justification for the "reforms" to pension contributions, states on page 22:

There have been significant reforms to the main public-service pension schemes over the last decade, including increased pension ages for new members and a change in the indexation of pensions from RPI to CPI indexation. Some of these changes have reduced projected benefit payments in the coming decades. For the interim report, the commission asked the Government Actuary's Department (GAD) to project future public-service pensions expenditure. It projected benefit payments to fall gradually to around 1.4 per cent of GDP in 2059-2060, after peaking at 1.9 per cent of gross domestic product (GDP) in 2010-11.

But, as Jon Snow's interview with the Cabinet Office Minister, Francis Maude, on Channel 4 News on Monday evening revealed, the government seems totally unaware of the contents of the report that it commissioned -- and that it now chooses to hide behind.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.