Public sector strike: are low paid workers paying more for pensions?

"800,000 low paid workers on £15,000 a year or less are facing an immediate tax rise of 3 per cent." Ed Miliband, Prime Minister's Questions, 30 November 2011

With trade unions predicting the biggest strike in a generation as up to two million public sector workers today downed tools, there were heated exchanges in the Commons during this afternoon's Prime Minister's Questions.

Labour Leader Ed Miliband accused his opposite number of "spoiling for this fight" with the unions, arguing that his Government should have done more to protect low-earning part-time workers from the changes.

He claimed that some 800,000 people in these jobs would lose three per cent of their incomes due to the reforms. However David Cameron rejected the claims, arguing instead that many on low and middle incomes would see a rise in their annuities.

This was also the line taken by the Chancellor George Osborne on Sunday's edition of the Andrew Marr Show. Mr Osborne claimed that "there's actually a lot of misinformation around," adding that "we've explicitly excluded people on very low salaries from paying more contributions for their pensions."

So is the Leader of the Opposition mistaken?

Analysis

According to Chief Secretary to the Treasury Danny Alexander, the Government proposals are "progressive and fair" because they "would not increase contributions at all for those earning less than £15,000 a year, and we propose a limit of 1.5 percentage points increase for those earning up to £18,000."

This would seem to directly contradict Ed Miliband's claim; however there is a catch.

Pension contributions are calculated on a Full Time Equivalent (FTE) basis. This means that the 'pensionable pay' for those public sector workers employed on a part-time basis would be the total they would be paid if their job was a full-time position. (For example a civil servant earning £12,000 and working half the time of full-time employee would have a pensionable income of £24,000.)

This group of people may therefore not be subject to the protections highlighted by Mr Alexander, despite the fact that in reality they take home less than the £15,000 threshold, and may therefore be subject to increased contributions of 3.2 per cent.

The TUC has indeed calculated that there may be around 800,000 people may fall into this category.

In a press release from earlier this month, the TUC noted that: "806,000 public sector part-time workers earn less than £15,000 but have full-time equivalent earnings of more than this and will therefore have to pay the increase in contributions being demanded by ministers."

This in turn was based upon the ONS's Annual Survey of Hours and Earnings (ASHE), table 13.7a of which shows that there were some 1.97 million part-time workers in the public sector, and just under 70 per cent of these have gross earnings below the £15,000 threshold.

Of course not all of this group will necessarily go above the £15,000 mark under the FTE, and the TUC have used Labour Force Survey data to reach the 806,000 estimate.

A spokesperson for the TUC also told Full Fact that this could be a conservative estimate, as staff positions outsourced to private employers can also be eligible for certain public sector pension schemes.

For their part, the Treasury point out that pension contributions have always been calculated using the FTE method, and changing this wouldn't necessarily result in a more 'progressive' system.

The Treasury told Public Finance magazine: "If you were to do it the other way you could be in the situation where someone earning £100,000 on an FTE basis, but just working a few hours a week would pay no extra contributions, whilst someone earning just over £15,000 and working full time would have to."

Conclusion

While it is true that the Government has announced measures to help those on low incomes affected by the changes, it does seem the case that they won't capture all those working on a part-time basis.

While it is important to note that Ed Miliband's claim that some 800,000 workers will lose out in this way is a TUC estimate rather than an official one, it is grounded in the data provided in the LFS and ASHE.