Britain’s conservative-party head David Cameron didn’t win any thanks from his own party for a speech yesterday in which he called the division between public-sector and private-sector pension plans in Britain “apartheid” and said that he wants Britain “to move increasingly towards defined contribution rather than final salary” — defined-benefit — “schemes.”
Pension politics is hardly “arpartheid.” But Cameron’s criticisms of defined-benefit pensions, absent that specific characterization, hold here in the US, too. As the Financial Times said following Cameron’s speech, “there is a yawning gap in the UK between public and private sector provision. … Private sector workers expecting to work into their 70s can only look on and envy, while forking out the taxes to pay for others’ longer retirements.”
In New Jersey, which has severely underfunded its pensions, and to a lesser extent in states and cities like New York, which are certain to see sustained multi-billion-dollar investment shortfalls in their funds in the coming years, private-sector taxpayers who have seen their own 401(k) retirement accounts decline precipitously in recent months likely will be paying higher taxes to make up the difference in public-sector workers’ guaranteed pensions.
The huge losses in those private-sector 401(k)s, of course, are hardly an argument for switching everyone over to defined-contribution pension systems without serious reform. The millions of private-sector workers who had planned to retire using the rising values of their houses and stock portfolios are likely the financial crisis for next decade.
Still, though, at a time when elected officials are going to have fight unions for wage and other concessions to achieve budget savings, it’s worth pointing out to public-sector employees that their defined-benefit pensions are obviously far more valuable than even they had thought just a few years ago.
Thus, it’s not unreasonable for them to give something else back, possibly shouldering more of their current healthcare costs to start with, while all levels of government and the private sector work on a pension fix for both the public and private sectors.