The Association of  Christian Financial Advisers (ACFA) believes the public-workers’ strike over  pensions is unjustified. ACFA says society can no longer afford ‘unfunded’  final-salary pensions when people are living longer – without either increased  personal contributions or reducing the benefits. ACFA sees a growing  and  ‘unfair’ gap between public and private sector pensions and wants the government  to go further to encourage pension saving.
The following statement is  by ACFA chairman Aidan Vaughan.
  
Public sector pensions -  time for a reality check!
‘Everyone wants a pension but nobody wants to pay for  one’
Wednesday sees a planned  day of action by major public sector trade unions over pensions - the  Association of Christian Financial Advisers (ACFA) consider whether their cause  is justified. Chairman Aidan Vaughan writes:
Final salary pensions provide a guaranteed pension based on years of  service and the final salary - they provide tremendous security in old age for  the member and their spouse.  Pensions can be as much as two-thirds of final  salary on 40 years of work, or much shorter periods for certain groups of key  workers such as policeman, fireman, high court judges or members of  parliament.   
Local Authority pension schemes are funded but others, notably the  Civil Service, Teachers and the NHS, are un-funded and are paid for by the  taxpayer, you and me.  30 years ago a virtuous combination of factors made the  schemes affordable.
Times have changed such  that very few comparable workers in the private sector have the luxury of a  promise of guaranteed pensions, in fact out  of the top 100 FTSE quoted companies only five offer new workers membership of a  final salary-related pension.  
According to the Occupational Pension Scheme survey for 2010 there  were 2.1million private sector active members in final salary schemes as opposed  to 5.3m public sector employees.  There was another 1m active members in private  sector defined contribution schemes where the employee takes the risk of the  ultimate returns.  Overall, public sector pension costs for 2010 were  £32billion, less £5b paid for by employee contributions.
Even very successful  companies realize that they cannot offer open-ended promises of indexed-linked  pensions for retirees who could live into their eighties or  nineties (we expect to live a third longer  than in the 1950s).  
The scope for ‘final salary’ manipulation is legion – promotions or  bonuses at or near to retirement to inflate the final salary figure, early  retirement without actuarial reduction due to adverse health,  favourable early retirement as part of a ‘down-sizing’  package, retiring and then immediate re-hiring etc.  
An extreme private sector example of this was that of the former  banker Fred Goodwin originally being awarded a pension reportedly up to  £703,000pa (until voluntarily reduced) in August 2008 at age 50 after his  disastrous tenure at Royal Bank of Scotland (precipitating the biggest loss in  UK corporate history).  
In truth, all of us would  love the security of an indexed final salary pension where someone else provides  the guarantee, takes on the investment risk, longevity/annuity risk, not to  mention the administration and compliance costs.  But if final salary pensions  are to be maintained personal contributions will have to increase or benefits  will have to be reduced.
Governments, who are  themselves public servants, have been afraid to tackle the real  issues.  Our last government tinkered around  the edges but refused to grasp the nettle.  The current government, after the  Hutton report, has shown some courage by seeking to cap the overall costs of  schemes (most to 20 per cent of salary bill) and requesting a higher  contribution from workers (either directly or by using a career average, working  longer, less indexation, capping total benefits etc).  
The latest compromise (‘no reduction for anyone within 10 years of  retirement’, when that is exactly the group who has the greatest accrual of  benefits and the greatest scope for giving something up) shows just how  difficult it is to try and reform such an emotive issue as public sector  pensions. 
Spare a thought for the  millions who have to fund their own private money purchase pension  arrangements, especially if policy holders  buy annuities at derisory rates.  Based on a hypothetical funding calculation  (using recent annuity rates - see below) a 25-year-old male would have to  contribute 28 per cent of his salary to provide an indexed-linked two-thirds  final salary at the age of 65 - an impossible task.
Let’s make no bones about it, final salary pensions can be the best  possible and most efficient form of pension provision - it is a travesty that  the private sector has largely had to withdraw them.  
To retain the support of  taxpayers for public sector final salary pensions, there needs to be a reality  check of what is ‘affordable’ to us all - citizens of an indebted and ageing  western nation, struggling to adjust to a changing world order.  
The Hutton report was commissioned and reported in October 2010 and,  very reasonably, suggested that solutions should involve affordability and sustainability; adequacy and fairness; transparency  and simplicity.  
When negotiation is taking  place we are struggling to see the logic of industrial action - please make your  points quickly and go back to work!
This issue is of enormous importance to everyone in our nation,  especially the younger generations who have to help fund the retiring ‘baby  boomer’ generations as well as themselves!  There has to be justice between the generations as  well as between competing groups of workers for society to work effectively.  It  is a time to think beyond our own interest groups. 
Final salary pensions are  a great thing. It would be wonderful if they could be available for all, but who  should pay for yours – you or other taxpayers? There is an issue of fairness and  integrity here that affects the whole of our society.
ACFA is the UK  network of Christian financial advisers and related professionals. It aims to be  the voice of Christian financial advice and champions best practice in the  UK. The ACFA website offers  links to Christian financial advisers across the UK.
Note: Male aged 25 retiring 40 years later, final salary £23,700  (national average earnings), starting salary £7,269pa, salary and contributions  escalating at 3%pa, investment return of 7%pa, allowance for expenses of 1%pa,   spouse 3 years younger, RPI escalating annuity 3.2% and 50% spouse’s pension, retirement fund  £492,700, no tax free cash.