The former head of the civil service believes that public sector pensions should be reduced to help fund pay increases.
Public Sector Pension Concerns Exacerbated by Workplace Morale Crisis
Lord O'Donnell, who oversaw the civil service from 2005 to 2011, claimed the industry needs to change away from pension-based payment and towards greater pay, stating that there should be “more pay, less pension.”
He was responding to a post on X that suggested there was limited evidence that retirement benefits increase employee retention, implying that the compensation paid in the public sector was insufficient to attract top talent.
He stated on the network, which was previously known as Twitter, “I will continue to argue that we desperately need a switch towards more pay less pension in the public sector. You can’t get a mortgage based on your future pension.”
I will continue to argue that we desperately need a switch towards more pay less pension in the public sector. You can’t get a mortgage based on your future pension. https://t.co/hUsHo6QhOi
— Gus O'Donnell (@Gus_ODonnell) April 23, 2024
It was recently revealed that the expense of public sector pensions has risen above £2.6 trillion for the first time, exceeding the size of the British economy.
Millions of public-sector employees get significant “defined benefit” pensions, which guarantee them an inflation-linked payment in retirement.
Meanwhile, most private-sector workers have “defined contribution” pensions, which link benefits to financial market performance and hence have lower value.
According to Tom McPhail of the Lang Cat consulting firm, “There is a disparity between public and private sector pensions that is hard to justify. In general, private sector workers have substantially smaller pots by the time they retire.
“At the same time, lower-paid public sector workers such as nurses are struggling to meet day-to-day living costs.
“People generally put more value on getting money in their bank account now rather than later. There is an attractive logic to rebalancing the system so public sector workers get better pay today but slightly smaller pensions. This could be achieved by shifting to defined contribution plans.”
Despite attractive public sector pensions, there are rising worries that Whitehall departments are having difficulty retaining and recruiting employees, as well as low productivity.
According to the Institute for Government, staff turnover has reached its greatest level since 2010, aside from the post-pandemic peak, with 12 percent of civil servants changing departments or leaving in the year to March.
Public Accounts Committee Warns of Public Sector Pensions Morale Decline Over Pay Concerns
In a study issued last month, the Public Accounts Committee cautioned that persistent pay concerns are to blame for the collapse in public service morale, which has made it harder to recruit and retain employees.
However, the MPs also said that the Cabinet Office was not doing enough to enhance overall sector performance.
According to the research, several departments do not routinely collect data on underperformance — “and most do not monitor what happens to staff who are identified as underperforming”.
The Cabinet Office has required federal personnel to spend at least 60% of their time in the office, citing worries that hybrid working has reduced productivity.
Some employees are preparing to strike over the crackdown on working from home, with union members at the Office for National Statistics recently voting in support of industrial action. This was in reaction to plans that required them to be in the workplace for at least 40% of the working week.