Reform wants to change your public-sector pension – experts say it’s a bad idea ...Middle East

Plans by Reform UK to put an end to generous pension schemes for public sector workers are a bad idea, experts say.

Deputy leader, Richard Tice, said Reform would put an end to defined benefit (DB) pensions for new local government workers and consolidate dozens of existing funds into a £500bn “British sovereign wealth fund”.

But such a move would result in industrial action and is completely out of touch with what voters want, industry experts told The i Paper.

Currently, local government workers pay into DB schemes where employees contribute to funds that promise a guaranteed level of income in retirement.

Under Reform’s overhaul, new staff would instead be enrolled in defined contribution (DC) schemes, where retirement income depends on contributions and investment performance rather than a guaranteed payout.

Critics warn the changes would be unpopular with workers, could damage retirement pots and intensify recruitment pressures in already stretched local services.

What would Reform change?

Reform plans to stop new workers from being able to join local government DB pension schemes and enrol future hires into DC plans instead.

People already enrolled in DB schemes would stay in them.

DB schemes – often described as “gold-plated” – guarantee an inflation-linked income for life, and have seven million members, while DC pensions build individual pots whose value depends on contributions and investment returns – with a payout figure not guaranteed.

The party also proposes merging nearly 100 local government schemes into a single £500bn structure, requiring a much larger share of assets to be invested in UK companies and infrastructure projects.

Reform argues that increasing how much is invested in the UK to around 25 per cent – from below 4 per cent today – could unlock roughly £100bn of additional investment in domestic markets.

Two decades ago, about 40 per cent of UK pension savings were invested in British companies, but now there is much more invested in overseas firms.

What is a sovereign wealth fund?

A sovereign wealth fund (SWF) is a state-owned investment fund that manages large pools of national assets with the aim of generating long-term returns.

Several countries have such funds, including Norway and Singapore.

Such funds often invest in financial products, buying stakes in companies, to provide financial benefits in the future. Reform argues that adopting an SWF and pouring pension money into UK-based companies, housing and infrastructure will support growth.

Why do the experts think it is a bad idea?

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There are several issues with Reform’s plans, experts have warned.

Steve Webb, former pensions minister and partner at pension consultants LCP, said: “If switching billions of pounds into different investments would generate better returns, these large pension schemes would already be doing it.

“The risk when a government tells schemes how to invest in pursuit of the government’s agenda is that the member loses out.

“In this case, if local government pension funds achieved poorer returns, this would mean councils would have to find more money from council tax payers to make up the shortfall.“In addition, councils may have to offer higher wages to new recruits if the pension package on offer was made worse.”

Tom Selby, director of public policy at AJ Bell, added that Tice is “spoiling for a fight with public sector trade unions”.

Any move to change the system would “almost certainly result in industrial action among those affected by what would inevitably amount to a watering down of their pensions”, he said.

“Ultimately, these schemes need to have enough assets to pay members’ pensions and if the strategy goes wrong, it will be the members who are left paying the price.”Public sector pensions have faced increasing scrutiny in recent times because they are largely unfunded, meaning pensions are paid from current taxation rather than from a pre-funded pot.

This can create significant long-term liabilities for the state and ultimately future generations of taxpayers.

Yet many government workers have been promised a guaranteed retirement income and to change that now would not be a popular move, experts argue.

Jason Hollands, managing director of Evelyn Partners, explained: “Such reform would be politically contentious. Members of public sector DB schemes are exposed to very little risk as the liabilities sit on the shoulders of taxpayers.

“Moving to a DC system, like most of the private sector, would transfer much of that risk to employees, creating less predictable retirement outcomes.”

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Mike Clancy, the union general secretary of Prospect, said: “Reform’s proposals for public sector pensions are a terrible deal for both workers and the taxpayer.

“Reform are still refusing to admit that their pension changes will add billions to public spending in the medium term, money that would need to be found from cuts or tax rises.

“Their plans to attack employment rights are completely out of touch with what voters want, and would plunge millions back into precarious work.

“Reform’s offer to working people is now clear: insecurity at work and poverty when you retire.”

Reform UK has been contacted for comment.

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