The elephant in the room

Before comparing costings, we must acknowledge the elephant in the room – what is the real cost of Civil Service pensions? Not, perhaps, the most enticing of invitations. But pensions are, as it happens, the key to comparing public and private sector costs:

• • Pensions are now by far the biggest single cost difference between the two sectors.

• • The historic gap is ineradicable: accrued pension rights must be met.

• • The issue is systematically ignored in competitions.

• • The problem is arcane and little understood.

The question

It is important to be clear what the question is. It is not:

• • Are Civil Service pensions fair, compared to the private sector?

• • Are Civil Service pensions economically or fiscally affordable, now or in future?

• • Do civil servants contribute a fair share towards their pension, compared to their employer's contributions?

Though those issues are important for other reasons. It is this: have the contributions of employees and employers towards the pensions of staff in public sector prisons been enough to cover those pension liabilities? If not, then there is an invisible, unrecognised but real cost attached to the public sector, and cost comparisons have to be adjusted to take account of this.

The Principal Civil Service Pension Scheme

HMPS staff are members of the Principal Civil Service Pension Scheme (PCSPS). This is a defined benefit scheme: where you are entitled to a certain level of benefit based on salary and time served. The other type is the defined contribution scheme, where you cannot know what pension you will get, because your entitlement is defined by what you (and your employer) put into the scheme's fund, and how those investments perform. Many defined benefit schemes in the private sector have closed, because longer life expectancy, lower returns, and legislative and tax changes have made them impossibly expensive to fund. Numbers in private sector defined benefit schemes has fallen from 8 million in the 1960s to just over 2 million – and most remaining schemes are closed to new members (Independent Public Sector Pensions Commission, IPSPC, 2010).

The PCSPS was, and still is, extremely generous (and it was getting more generous: average pensions increased 10% in real terms in the 2000s: IPSPC, 2010).