Why the last laugh will be on Sir Humphrey
12 December 2008
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Monetary Policy
11 December 2008
Monetary Policy
16 December 2008
Economic Theory
By continually blocking reforms to public sector pension schemes, the leaders of the public sector unions may be dooming their members to an old age spent in penury.
In his excellent monograph, Sir Humphrey’s Legacy, Neil Record outlines the enormous unfunded cost of public sector pensions. And in A Bankruptcy Foretold, I argue that the scale of future pension commitments means that the government is likely to face severe financial difficulties. It will therefore have to attempt to reduce its obligations, and the easiest political target will probably be public sector pensions.
A paper from the ratings agency Standard & Poor’s predicts that UK government debt will be rated as “speculative” in less than 30 years. So the unions’ policy of blocking the merest mention of reform – and the government’s de facto policy of never standing up to the unions – has meant that they have secured for their members an unsecured debt against a creditor with a junk rating.
If the unions had the best interests of their workers at heart, they would be negotiating a reduction of benefits in return for funding – this would mean that the pensions would be backed by assets rather than empty promises. Given the dire state of the public finances, it would be a wise exchange.
In his excellent monograph, Sir Humphrey’s Legacy, Neil Record outlines the enormous unfunded cost of public sector pensions. And in A Bankruptcy Foretold, I argue that the scale of future pension commitments means that the government is likely to face severe financial difficulties. It will therefore have to attempt to reduce its obligations, and the easiest political target will probably be public sector pensions.
A paper from the ratings agency Standard & Poor’s predicts that UK government debt will be rated as “speculative” in less than 30 years. So the unions’ policy of blocking the merest mention of reform – and the government’s de facto policy of never standing up to the unions – has meant that they have secured for their members an unsecured debt against a creditor with a junk rating.
If the unions had the best interests of their workers at heart, they would be negotiating a reduction of benefits in return for funding – this would mean that the pensions would be backed by assets rather than empty promises. Given the dire state of the public finances, it would be a wise exchange.
6 thoughts on “Why the last laugh will be on Sir Humphrey”
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Ah, I see you are thinking of someone or somebody actually acting responsibly. What are you thinking of, this is Britain, we do fantasy and all manner of clever crookery, but we no longer act rationaly. The ugly reality is that Britain has the government it wants, the consequences of its disinterested and stupid judgement will be what it deserves.
Ah, I see you are thinking of someone or somebody actually acting responsibly. What are you thinking of, this is Britain, we do fantasy and all manner of clever crookery, but we no longer act rationaly. The ugly reality is that Britain has the government it wants, the consequences of its disinterested and stupid judgement will be what it deserves.
To know value of the public debt of pension systems is very important for their long-term stability. And since pension system is a foundation of modern financial prosperity, it’s also important for overall finances in economy. Public debt when certain – receives a rating, and a plan when and how it will be paid out; look for Chilean bonds experience. Few have counted and rated public debt, less – ever paid it out. Sound financial system better has these in place from the long-term prospective.
To know value of the public debt of pension systems is very important for their long-term stability. And since pension system is a foundation of modern financial prosperity, it’s also important for overall finances in economy. Public debt when certain – receives a rating, and a plan when and how it will be paid out; look for Chilean bonds experience. Few have counted and rated public debt, less – ever paid it out. Sound financial system better has these in place from the long-term prospective.
Key point in finances is trust. When Chile issued pension bonds, actually paying annual interest, this was one of the steps towards economic development of this state. As far as I know, none of the pension system reforms worldwide implemented such bonds after Chile, though Kazakhstan made its system like a Chile (10% payment from the payroll, and abolishing PAYG system, and turning it into fully funded system). FF system as you know, accumulates huge surplus of the finances.
Key point in finances is trust. When Chile issued pension bonds, actually paying annual interest, this was one of the steps towards economic development of this state. As far as I know, none of the pension system reforms worldwide implemented such bonds after Chile, though Kazakhstan made its system like a Chile (10% payment from the payroll, and abolishing PAYG system, and turning it into fully funded system). FF system as you know, accumulates huge surplus of the finances.