Government should let public sector workers take their pensions early
Giving public sector workers access to their pension pots before they retire would boost the economy and ensure the UK's long-term economic health
How did Labour go from the radicalism of our policies being seen as a vote-winner in 2017 to a drag on our chances in 2019? That will be the subject of internal inquests and Twitter rows for years to come.
But for me, it’s clear: in December, our manifesto and our daily news output were so over-crowded with new policies that the overall package ceased to have credibility and many voters just stopped listening.
Instead, we needed to identify our top five radical, popular, fully-funded policies, designed to resonate just as much in smaller towns as in bigger cities, and push those relentlessly throughout the election campaign.
That’s how I’ve approached this current leadership contest, showing people how my policies can be radical and innovative, but always rooted in credibility.
On the climate crisis, I’ve been clear we must act: realising the potential of the Severn River to become the world’s second largest tidal power source and helping us to meet our zero-emissions targets, but also working with other countries to help them become zero-carbon too, something I've called ‘The Globalisation of the Green New Deal’.
On health, I said we must finally deliver a fully-integrated, fully-funded NHS and Social Care system, ending the current shambles where elderly people are occupying hospital beds, because there is no-one to look after them at home, and no room at the local care home.
On the housing crisis, I talked about land banks earmarked for housing, left idle by wealthy developers, and about dormant dwellings, left empty and neglected for years, many of them owned en masse by uninterested overseas investors. In both cases, I said we must contact the housing developers and dormant dwelling owners, and give them a deadline by which they must ‘use it or lose it’, with any resulting land or homes returned to local councils to build affordable homes and social housing.
And on our global role, I said decisions on the approval of arms exports must be taken entirely out of politicians’ hands, and given to an independent body instead, ending scandals like the sale of arms for use in Yemen, all part of putting human rights at the heart of our foreign policy.
But at a time when the Tories are taking reckless risks with our economy, I believe we can also be the party of credibility on the public finances, but married with radical solutions. Especially when it comes to the ticking time-bomb of the pension payouts eventually due to millions of people in our country who’ve worked for short or longer periods in the public sector over recent decades.
One 2017 estimate put the level of all existing unfunded public sector pension liabilities at £1.7 trillion, about the same as the total value of London’s housing stock. Paying out those pensions currently costs £40 billion per year, the same as we spend on defence.
But unlike most departmental budgets, annual payouts will grow rapidly in the years ahead, reflecting the decades where our population was rising and public services were expanding in line.
No one on the government benches talks about this – it’s someone else’s problem decades from now – but you can see how much it worries our civil servants. They have no idea how we’re going to deal with the long-term bill, any more so than the long-term costs of social care.
This also matters in the short-term, because it’s part of the assessment that ratings agencies and investment companies are making about how credit-worthy our economy is.
So what I’d do is simple: I’d say to every former public sector worker with fewer than two years of pension rights built up, you can have 75% of your money now as a lump-sum, or you can wait until you retire and get the full amount. It’s entirely your choice.
If that scheme is popular, we'd move to 4 years of service, then 6, 8 and 10 by the end of the Parliament. And at every stage, current public sector workers could take the same offer in relation to that equivalent period of their service, which might make all the difference when paying off a loan, or other short-term costs.
One proviso: this scheme would have to be tax-neutral. Nobody in the pre-retirement bracket should gain a tax advantage, or indeed face a disadvantage because of their choice, nor should the Exchequer gain any extra net revenue bar the long-term saving. This scheme obviously comes at a short-term cost, which would have to be funded through borrowing, but there are two points.
First, there is no better time to borrow given the historic lows in interest rates. And second, even if it mean an increase in short-term borrowing, the credit agencies, investment firms and others will all see that it puts Britain on a much sounder footing in terms of our long-term fiscal health.
We would therefore have a practical measure, that starts to tackle a major long-term threat to the public finances, but at the same time puts money into the pockets of millions of working people on low-to-medium incomes, at a time when the economy is slowing down.
* Emily Thornberry is Labour MP for Islington South and Shadow Foreign Secretary