Public sector pensions

[Mithras]

..., but it's only a small part of what is wrong with Public Sector pensions. The problem is that we are living too long.

That is what the savings never look at - estimates are based on people living longer but we might not.

Also I guess we have more people of working age on benefits now, not only not contributing but taking away from the pot.

Remember too that in the past, plenty of people too early retirement from public sector posts. I worked alongside someone who had retired at 52 on full pension, only to be taken on immediately as a self employed consultant at a higher rate. This is not uncommon. People used to retire in their early fifties or even earlier on full or pretty near full pensions!

Also, anyone in the Private sector who has ever been given an end of year salary bonus or benefits from having a company car can stop complaining about pubic sector workers - those are luxuries that don't exist. It is all swings and roundabouts, what you gain in one area you lose in another.

It used to be the case. You now pay swingeing tax on company cars. Likewise now statistics actually show that public sector workers are paid more in many fields than private sector workers in the same line of work - the arguement for higher pensions based on lower pay simply doesn't wash any longer.

 

[BeesKnees]

Trouble is that the public sector - who DO pay for their pensions, it doesn't all come from your purse - are not only being asked to work more years, pay more into the pension pot they are then being told they must then accept smaller pensions in return. Fair?

Please read the posts from SantaPaws to see how you actually DON'T pay anything toward your pensions.

But even if you did - even if you paid for all of it yourselves, if the maths doesn't add up, then yes it is fair to have to pay more, work longer and take less. Just as if a private sector workers does not have a big enough pension pot, they too have to work longer, and/or pay higher contributions, and/or accept a lower amount.

No one is stealing your pension money. There simply is not enough in the pot to pay what as originally estimated. Why is that so hard to understand? And why is it that you feel that the general taxpayer should make up the deficit?

 

[BeesKnees]

I think the more common arguement is actually the opposite! That public sector workers are somehow more morally worthy than private sector workers........Particularly if someone says they are a nurse (bad example perhaps and I'm not trying to pick on anyone), simply because they do a caring job, they are supposed somehow to be beyond questions. But lots of other people do caring jobs too, and people who don't do that line of work aren't somehow less worthy either....

I think this is at the heart of the issue. There is an entrenched belief amongst people in 'caring' public sector jobs that they are doing a more important job than anyone else and therefore deserve better pay and conditions. They might not say it out loud, but attempts to justify striking with arguments about how hard they work in a caring job and dismissive talk of private sector 'pen pushing in an office' would appear back this up.

I think most frontline public sector workers do indeed work very hard in vital jobs, and should be paid a decent amount, but if pensions are no longer affordable, what can we as a society do? Perhaps secretly they think all private sector workers should just pay more tax?

 

[Wundahorse]

The reality is that most front line staff do indeed work very hard,often for a basic salary without all the add ons,such as overtime,as previous generations enjoyed.The pension for these staff is not always great.However,there are many managerial people in positions most front line staff feel is unjustified and over paid,and who make life very difficult for those actually trying to deliver a service.A great deal of money could be saved if these positions were jettisoned.They have no concept about what front line staff are struggling with among all the sweeping cut backs in services,and most simply do not care,as long as their position is safe.I know of one high ranking Director of Social care who is on a big salary(nearly £200,0000),who is so inept that she is being asked to leave,but because she has a contract,she is being paid of somewhere in the region of one million pounds.Now that is total bad management,and a huge waste of public funds.If only i had the NHS budget,i could save billions,and spend wisely on essential staff only.

 

[cptrayes]

it doesn't all come from your purse

Yes it does. Please read the thread

So many of us (Private and Public) who end up working until we are 70 probably will die in harness and never see a penny of their pension.

When pensions were introduced men retired at 65 and were dead before they were 70. Currently a man retires at 65 is likely to live until he is about 80. That isn't going to change because even if retiring later was to bring it back a year or two, advances in medical science are going to push it out even further.

Also, anyone in the Private sector who has ever been given an end of year salary bonus or benefits from having a company car can stop complaining about pubic sector workers - those are luxuries that don't exist. It is all swings and roundabouts, what you gain in one area you lose in another.

The value of a company car bears no relationship to the cost of provision of a pension like the public sector pensions and is in any case taxed as salary. Many public sector workers receive essential user car allowances which pay for them to run a car, leaving them to pay only for the fuel of their private mileage, almost as valuable as a company car.

A bonus is just salary, taxed as salary.

The fact is that most public sector salaries are, after several years of the private sector tightening its belts, higher than the salary for an equivalent job in the private sector before one even starts to count the pension. At the moment, the swings are still swinging but the roundabouts went into reverse some time ago.

 

[paddy555]

...,

True we are all living longer/. Trouble is that the public sector - who DO pay for their pensions, it doesn't all come from your purse - are not only being asked to work more years, pay more into the pension pot they are then being told they must then accept smaller pensions in return. Fair?

Ther other thing the Government never mention is that the longer we work the shorter our lives are likely to become. Statistically those forced to work extra years die sooner than those who retire early. So many of us (Private and Public) who end up working until we are 70 probably will die in harness and never see a penny of their pension.

That is what the savings never look at - estimates are based on people living longer but we might not.

Also, anyone in the Private sector who has ever been given an end of year salary bonus or benefits from having a company car can stop complaining about pubic sector workers - those are luxuries that don't exist. It is all swings and roundabouts, what you gain in one area you lose in another.

no it is not fair but it IS what is rapidly becoming reality. If the system was to remain on the same level as at present where would the money come from? From the taxpayer obviously but there just isn't enough.
You are correct that if the pension age increases then some people will die before they get their pension be it due to overwork or simply illness. Those in government pension schemes however do have widows pensions and other benefits. I do agree though that is not much consolation to the deceased.


I believe that in addition to expecting a pension people are also going to have to take more responsibility to save to fund their retirement be it through property, ISAs or other investments. Part of the problem seems to be that people are unwilling to do this prefering to spend rather than save. I appreciate that savings rates are poor and provide little incentive but people are going to have to take more responsibility to fund their old age.
There has been far too buying things on credit and living beyond our means over the last few years. I can see that with easy credit that was tempting.

As for your comment on salary bonuses then you cannot make blanket statements. Bonuses are suject to tax and NI anyway but many workers salary package is based on a lower salary and performance bonus. As for company cars then again employees provided with a company car available for private use (which I presume you are talking about) are taxed on this car benefit and on car fuel benefit.

 

[Wundahorse]

Some people will never contribute in any way to the economy,pensions etc as they are the long term unemployed,and this pattern is familial.The economy subsidises these folk,and then pays even more when they need care;i.e.care homes,while those who save have to sell their homes and raid savings to fund care needs.I have sympathy for those who have severe and enduring illness and disability which may prevent them from working and contributing,but i resent funding other peoples drug,alcohol and unhealthy lifestyles.The Govt. could act here to make such people do voluntary work,at least, as a means of contributing.I speak through experience as i deal with these people every day in my professional capacity,and feel quite exasperated by their lack of motivation,and expectation that the country owe's them something.I can predict my pension pot will be eroded if i need care,regardless of the fact that i save for the future,and have my pension,while some people will get everything funded by the state.

 

[Horsey_dreams]

Public sector workers are unhappy because what they signed up for has changed- regardless of if they paid into it or not, their pension is being attacked, for many of them it is too late to start paying into a private pension. How is that fair? What will they take away next? When money needs to be saved it is always the poorest who are attacked, the top heavy management will be fine. We can afford to send aid overseas, and to fund the 2012 Olympics, yet we will take away the pensions of our front line public sector workers. And you can bet one of the 'big 6' energy providers (my employer) has piggy-backed onto this, despite huge profits last year we received a 2% pay increase, (strangely top management got a much higher % increase) we are told to feel lucky we even have a job as public sector workers got no rise. Well guess what, we are not public sector, we make a profit and we want a pay rise that reflects this, same as we are not public sector, so i will not be rubbing my hands with glee because they are loosing their so called 'gold plated pension'.. now my employer has announced they are looking at our pensions too..

 

[cptrayes]

Public sector workers are unhappy because what they signed up for has changed- regardless of if they paid into it or not, their pension is being attacked, for many of them it is too late to start paying into a private pension. How is that fair?

It isn't fair. It's what happened to private sector and personal pensions when Gordon Brown took £5 billion a year out of them several years ago. I personally lost an awful lot of money that I was too old to recover.

strangely top management got a much higher % increase.

This is completely wrong but a different issue. It needs sorting.


Tell me, do you think it is right that someone who works on a till in a Supermarket paid £11,000 a year should pay tax to enable a public sector worker to retire earlier than they can on a pension that they can't dream of?

Your own pension is a hangover from when Electricity was a nationalised industry. I'm sorry, but you had better plan that you are going to lose it like the rest of the private sector.

 

[Mithras]

Public sector workers are unhappy because what they signed up for has changed- regardless of if they paid into it or not, their pension is being attacked, for many of them it is too late to start paying into a private pension. How is that fair? What will they take away next?

I think this post illustrates how sheltered some of the public sector (or quasi public sector, dependent on public sector contracts) have been from the recession and economic reality so far. What do you think happens in the private sector? You can pay into a private pension diligently for years, and because the stock market underperforms just as you are about to retire, end up with less than you paid in!

(and does anyone really sign up for a "job for life" any more?).

despite huge profits last year we received a 2% pay increase, (strangely top management got a much higher % increase) we are told to feel lucky we even have a job as public sector workers got no rise.

My husband hasn't had a pay rise for 3 years! Along with everyone in his company. But at least they haven't been made redundant.

 

[fburton]

It isn't fair. It's what happened to private sector and personal pensions when Gordon Brown took £5 billion a year out of them several years ago. I personally lost an awful lot of money that I was too old to recover.

The money our govt spend on chasing non-existent WMD and regime-meddling in Iraq would have come in handy, not to mention the cost in lives. "As of June 2010 UK costs exceeded £20bn for the Iraq and Afghanistan wars combined." I have a little more sympathy for Al Qaeda chasing but there is no denying the Afghanistan adventure is a hugely expensive. But that is a different issue...

 

[Maggie2009]

I know full well that the nhs pension changed in 1997 to an average salay scheme so the fact is the pensions have altered despite public perception.As to comapring a supermarket worker,with for example,a Doctor or a Nurse,there are huge differences i training,responsibilities and roles,and these jobs recieve a salary to reflect this.Supermarket staff are not responsible or accountable for peoples lives.When all you critical and negative people who need the Nhs,i bet none of you think about public service pensions at that point,as you will be considering your own health needs first.All nhs staff have had a pay freeze for the last three years with more to come,and staff are being downgraded to save the nhs money.So please private sector people,stop all the whinging.

 

[Oliver12]

As to comapring a supermarket worker,with for example,a Doctor or a Nurse,there are huge differences i training,responsibilities and roles,and these jobs recieve a salary to reflect this.Supermarket staff are not responsible or accountable for peoples lives.When all you critical and negative people who need the Nhs,i bet none of you think about public service pensions at that point,as you will be considering your own health needs first.All nhs staff have had a pay freeze for the last three years with more to come,and staff are being downgraded to save the nhs money.So please private sector people,stop all the whinging.

We're not just talking about doctors and nurses though are we? It is all public sector workers. My daughter works in local government and she's astonished by the amount of 'dead wood' drifting around. Her office manager has literally nothing to do (and she knows it) and spends all her time trying to look busy. I bet she's terrified that eventually they'll cotton on. I wouldn't like to think how much she earns and as she's due to retire in a couple of years after a very cosy career no doubt she's got a very good pension.

 

[Mithras]

We're not just talking about doctors and nurses though are we? It is all public sector workers. My daughter works in local government and she's astonished by the amount of 'dead wood' drifting around. Her office manager has literally nothing to do (and she knows it) and spends all her time trying to look busy. I bet she's terrified that eventually they'll cotton on. I wouldn't like to think how much she earns and as she's due to retire in a couple of years after a very cosy career no doubt she's got a very good pension.

Thats actually why I left my job for a local authority. It was a very easy job but actually rather badly paid for what I did. The reason it was badly paid is that the department was staffed by dead wood, everyone else was in their mid fifties or older except the re-employed pensioner-consultant (who didn't even have a practising certificate and therefore couldn't do half the job). Their skills were quite out of date, their working practises poor, I was not learning anything but bad habits and it was so boring, it was soul destroying.

 

[MerrySherryRider]

When all you critical and negative people who need the Nhs,i bet none of you think about public service pensions at that point,as you will be considering your own health needs first.All nhs staff have had a pay freeze for the last three years with more to come,and staff are being downgraded to save the nhs money.So please private sector people,stop all the whinging.

Lets not cannonize all NHS staff just yet.
I was a qualified nurse in the NHS and some nurses I wouldn't leave in charge of a sick dog, like the nurse who ignored my mothers requests for the toilet, left her to soil herself, develop pressure sores and thought that 50mls (yes, 50 mls) of fluid intake was sufficient over a 24 hr period.
He wasn't worth his pension.

 

[Maggie2009]

I do appreciate there are poorly performing staff around,and some who should never have trained as Doctors or Nurses.I also know there are lots of staff in public sector jobs(not specifically professional ones) who are in pointless positions,doing very little to support the services they work in.I agree such people need to be weeded out.However,at the front line it can be hard,and ofted staff are subjected to violence,hostility and aggresion.I know of one Social Worker who was recently stabbed in the chest,narrowly missing his heart.This is one example of many,not to mention dealing with the drunks and drug addicts who present themselves at A&E.Adding to the woes are layer upon layer of bullying managers who make staff work in difficult situations,often understaffed and under resourced,while they have the luxury of going home and swithing off for the day.

 

[cptrayes]

I know full well that the nhs pension changed in 1997 to an average salay scheme so the fact is the pensions have altered despite public perception.As to comapring a supermarket worker,with for example,a Doctor or a Nurse,there are huge differences i training,responsibilities and roles,and these jobs recieve a salary to reflect this.Supermarket staff are not responsible or accountable for peoples lives.When all you critical and negative people who need the Nhs,i bet none of you think about public service pensions at that point,as you will be considering your own health needs first.All nhs staff have had a pay freeze for the last three years with more to come,and staff are being downgraded to save the nhs money.So please private sector people,stop all the whinging.

Some public sector pensions changed to average salary from final salary. We know that. Hardly any people in the private sector have a pension linked to their salary at all. I do not think that you understand how valuable a defined benefit scheme is.

Do you realise that a private sector worker in a money purchase scheme does not know until 30 days before he takes his first pension payment how much it is going to be?

And that if the stock market collapses 31 days before he is due to take his pension he will be a lot worse off than somenone who retired a day earlier than he did?

And that if he gets too sick to work before his retirement date, he can't have his pension at all, or if he can the rate is slashed?

And that he would need a fund of £100,000 for every £4,000 of your pension to get the same benefit, not including widow's pension or retirement on ill health?

I think it is perfectly valid to compare a supermarket worker with a nurse. As you so rightly point out, the difference in the level of responsibility is reflected in the SALARY. Roughly £11,000 a year for a till jockey and £30,000 for a nursing sister.

I do not think it is ethical for a supermarket worker on £11,000 a year to have to pay tax to contribute to a public sector worker's pension on top, when defined benefit pensions have pretty much disappeared from the private sector.

We are not whinging, we are trying to explain why we think it was completely immoral for public sector workers to strike to try to retain pensions which the country can no longer afford to pay because we are all living too long.

Yet again we have a response here as if we are attacking nurses. We aren't. Most of them do a wonderful job. That does not mean that it was right for a nurse to strike last week.

 

[cptrayes]

However,at the front line it can be hard,and ofted staff are subjected to violence,hostility and aggresion.This is one example of many,not to mention dealing with the drunks and drug addicts who present themselves at A&E.Adding to the woes are layer upon layer of bullying managers who make staff work in difficult situations,often understaffed and under resourced,while they have the luxury of going home and swithing off for the day.

Do you think experiences like this are the sole preserve of the Public Sector?

Bailiffs face death threats. Security staff in shopping centres are regularly assaulted. Shop workers face daily abuse from customers. Even MacDonalds run so tight on the staffing those guys in the kitchens run their socks off. Call centres have rightly been described as the "dark satanic mills" of the 21st century. Most people have had a bully as a boss at one time or another. At one time my manager bawled at me "don't bullshit me!" in front of customers. I wasn't, I had just told him a truth he did not want to hear.

You are no different from the rest of us. You should not have pensions that the rest of us cannot hope for, especially when you expect us to pay for them.

(They should not be removed overnight, that would be very unfair, but they must be faded out over time or that would also be very unfair).

 

[BeesKnees]

I do appreciate there are poorly performing staff around,and some who should never have trained as Doctors or Nurses.I also know there are lots of staff in public sector jobs(not specifically professional ones) who are in pointless positions,doing very little to support the services they work in.I agree such people need to be weeded out.However,at the front line it can be hard,and ofted staff are subjected to violence,hostility and aggresion.I know of one Social Worker who was recently stabbed in the chest,narrowly missing his heart.This is one example of many,not to mention dealing with the drunks and drug addicts who present themselves at A&E.Adding to the woes are layer upon layer of bullying managers who make staff work in difficult situations,often understaffed and under resourced,while they have the luxury of going home and swithing off for the day.

There are undoubtedly many issues with the public sector, but they bear no relation to the issue we are discussing, which is the unaffordability of public sector pensions.

We keep hearing how the 'attack' on pensions is 'not fair'. What is actually not fair, is that public sector workers get a defined payout worth up to 20 times their salary over the course of their retirement. That is you get a guaranteed amount, and the only way that can be guaranteed is by it being funded through other people's taxes. You carry no investment risk.

To quote a good example, a state worker can contribute a total of £46,000 over their career and get a pension of £26,000 per year. For a private sector worker to get the same pension of £26,000 per year, they would need a pot of £900,000. Even if they got a 5% return on their investment they'd still need to contribute at least £300,000 over the course of their career!!

Now tell me what's 'not fair'

 

[cptrayes]

Even if they got a 5% return on their investment

And that 5% has to be ON TOP of inflation, and that kind of growth has not been achievable with a private pension for over ten years. Many pension pots are now smaller than they were ten years ago.

 

[BeesKnees]

Just in case that wasn't clear enough Maggie2009, what that meant was that for a public sector worker and I to get the same pension, I would have to contribute at least 6 times more than them, and take a risk on the stock market performing well with no guarantees.

 

[BeesKnees]

And that 5% has to be ON TOP of inflation, and that kind of growth has not been achievable with a private pension for over ten years. Many pension pots are now smaller than they were ten years ago.

Yep. My pension pot (actually its so pathetic its more of a thimble ) is worth less this year than it was worth last year.

It's so frustrating that public sec workers do not seem to have a clue just how lucky they are

 

[perfect11s]

I know full well that the nhs pension changed in 1997 to an average salay scheme so the fact is the pensions have altered despite public perception.As to comapring a supermarket worker,with for example,a Doctor or a Nurse,there are huge differences i training,responsibilities and roles,and these jobs recieve a salary to reflect this.Supermarket staff are not responsible or accountable for peoples lives.When all you critical and negative people who need the Nhs,i bet none of you think about public service pensions at that point,as you will be considering your own health needs first.All nhs staff have had a pay freeze for the last three years with more to come,and staff are being downgraded to save the nhs money.So please private sector people,stop all the whinging.

CH rist!!!!!??? you are digging a bigger hole!!!! We dont believe you are badly paid or have a poor pension and we are sick of the unions picking fights just because their puppet labour goverment isnt in power anymore!!! yawn so they throw all the toys out of the pram .sorry public sector have you heard the expresion lions lead by donkeys..???? dont let these marxist cretins sorry I mean champagne socilists union barrons screw you .........

 

[BeesKnees]

Hey here's some more boring stats from the Treasury

Expenditure on pensions was £32 billion in 2008/09, an increase of a third over the last decade. This is about two-thirds of the cost of the entire Basic State Pension.
Costs have risen very significantly in recent decades – currently close to 2% of GDP – in 1980 it was below 1.2% and in 1970 it was around 0.9%.
The Whole of Government accounts show public service pensions liabilities are over £1.1 trillion.* Effectively, the entire education budget for more than twenty years.
In the 1970s a 60 year old could expect to live for a further 18 years, today the equivalent figure is 28 years.
When it started, members of the Teachers’ Pension Scheme put in the same as the taxpayer – 5% each. Today, current members pay 6.4%, with employers contributing more than double - 14.1%.
NHS employee contributions vary from 5.5 to 8.5%, whereas the employer contributes 14%.
Civil Service employees contribute between 1.5 and 3.5%, whereas the employer contributes 19%.
85% of public sector employees have employer sponsored pension provision, compared to just 35% in the private sector.

And of course when it talks about the employer, it does of course mean the tax payer....

 

[at work]

Of course you are right - the tax payer is the employer. Public sector means thousands of people from bin men to top paid civil servants.

The "gold plated pension" is related to what they earn - and how long they have been in their job. Gold plated perhaps for the minority of top civil servants who went straight to civil service after uni. and stayed there. For the majority who scraped a few years service in a poorly paid job it isn't exicitng money.

After working 15 years in 'public sector' (and in my case quite a well paid job, relatively speaking) I'll get about 9k per year in my inflated pension pot - is that really so exciting?

And edited again to add that it will cost me about 1.5k in personal contributions this year and public servants do pay tax too.

 

[BeesKnees]

Of course you are right - the tax payer is the employer. Public sector means thousands of people from bin men to top paid civil servants.

The "gold plated pension" is related to what they earn - and how long they have been in their job. Gold plated perhaps for the minority of top civil servants who went straight to civil service after uni. and stayed there. For the majority who scraped a few years service in a poorly paid job it isn't exicitng money.

After working 15 years in 'public sector' (and in my case quite a well paid job, relatively speaking) I'll get about 9k per year in my inflated pension pot - is that really so exciting?

And edited again to add that it will cost me about 1.5k in personal
contributions this year.

The term 'gold plated' does nit refer to the amount of pension. It relates to the fact that your pension payout is linked to your salary, is guaranteed and is heavily subsidised. You do not get less if the stock market performance is poor. NONE of this applies to private non occupational pensions which is the type most of us have.

In other words my employer does not have a pension scheme that I can pay
into, and which he also contributes to.

To get your guaranteed £9,000 per year pension I would have to pay 6 times
as much as you do.

 

[cptrayes]

I'll get about 9k per year in my inflated pension pot - is that really so exciting? And edited again to add that it will cost me about 1.5k in personal contributions this year

Yes, it's very exciting to a private sector worker.

To get your pension cost me £200,000 (all my own money, no employer contributions. I saved an average of 33% of my earnings for 30 years). AND mine is not index linked. If I'd had it index linked it would have cost twice as much.

and public servants do pay tax too.

Public servants do not contribute one penny towards the cost of the public sector, including their own pension. It is ALL financed by the private sector. If you doubt me please read all my other postings on this thread and you will see why. Health warning: This is NOT a judgement on the social value of the public sector, it's just a fact of how it is financed.

 

[Anglebracket]

Public servants do not contribute one penny towards the cost of the public sector, including their own pension. It is ALL financed by the private sector. If you doubt me please read all my other postings on this thread and you will see why. Health warning: This is NOT a judgement on the social value of the public sector, it's just a fact of how it is financed.

According to a report by The Institute For Fiscal Studies public sector workers do pay taxes. The following quote is taken from their annual green budget 2010:

But note that so far we have been careful to describe a ‘reduction in earnings’ rather than a ‘saving to government’. The government would not benefit from the full reduction in public sector remuneration because public sector workers pay taxes on earnings received and may also receive benefits or tax credits. Work at IFS using our tax and benefit model, TAXBEN, has estimated that for every £1 cut in public sector earnings, public spending is reduced by £1.19 but the government would save only 73 pence once loss of taxes and increased spending on benefits and tax credits are taken into account. So real savings from a 5% public sector pay cut are closer to £5.5 billion per year. (See Box 9.3 for details.)

Green Budget 2010, chapter 9, p. 227

The document can be accessed at http://www.ifs.org.uk/budgets

And to pre-empt any accusations of pro-public sector bias in this document, the IFS proposed the changes to public sector pensions that are currently being negotiated.

 

[cptrayes]

I haven't read the report but the loss of taxes is possibly Vat on purchases that they would not be able to make if they were on benefits, not income tax. The major effect may not be in the taxes lost but in the additional payment of benefits and tax credits. I'll try and read it, thanks for the reference.

 

[cptrayes]

According to a report by The Institute For Fiscal Studies public sector workers do pay taxes. The following quote is taken from their annual green budget 2010:

But note that so far we have been careful to describe a ‘reduction in earnings’ rather than a ‘saving to government’. The government would not benefit from the full reduction in public sector remuneration because public sector workers pay taxes on earnings received and may also receive benefits or tax credits. Work at IFS using our tax and benefit model, TAXBEN, has estimated that for every £1 cut in public sector earnings, public spending is reduced by £1.19 but the government would save only 73 pence once loss of taxes and increased spending on benefits and tax credits are taken into account. So real savings from a 5% public sector pay cut are closer to £5.5 billion per year. (See Box 9.3 for details.)

Green Budget 2010, chapter 9, p. 227


The document can be accessed at http://www.ifs.org.uk/budgets

And to pre-empt any accusations of pro-public sector bias in this document, the IFS proposed the changes to public sector pensions that are currently being negotiated.

OK

Take a deep breath and read carefully, this is really complicated No wonder economists earn a lot.

This quote is referring to the amount the Government would save if it axed Public Sector spending.

If it cut £1 off a nurse's salarly it will only save 80p

This is because for every £1 a nurse is paid, s/he returns 20p in tax immediately to the Treasury.

So, in terms of savings, the Government will save less than £1 for every £1 in wage it cuts, it will save only the amount less tax.

When the government pays the nurse the £1, it costs them only 80p because the nurse gives 20p straight back.

They may as well just pay the nurse 80p anyway, but for the sake of treating everyone the same, they pay them gross and deduct tax and NI.

The 20p is not contributing to the Public sector, because it is paid out in one hand and taken back with the other in the blink of an eye in a BACS transaction by the SAME ORGANISTION - the Public Sector. The Public Sector is no better off after the nurse has paid tax than it was before, because they gave him/her the money to give back to them.

Gone to sleep yet ??