Ruth Porter: Teachers should be passing knowledge to the next generation - not the cost of their unreformed pensions

Ruth Porter is Communications Manager at the Institute of Economic Affairs.

The latest strike threats, this time from the teachers’ unions, add a certain poignancy to the economic rebalancing that's taking place in Britain at the moment. If anyone is going to be mindful of generational justice, one would expect it to be teachers - but the debates over their pensions show a concerning short-sightedness. Michael Gove has highlighted the inconvenience to working parents of schools closing, but there is something bigger at stake here.

The NUT has said there are three aspects of reform on which they won’t compromise:

1. They won’t accept the increase in their pension age to 68 (which, realistically, the rest of the workforce faces).
2. They won’t accept the substantial increase in contributions.
3. They won’t accept the change to pensions being linked to CPI rather than to RPI.

It is generally accepted that teachers’ salaries and benefits packages should be financed by taxpayers but the situation has stretched beyond a point that is reasonable. The costs of traditional pension schemes in the public sector are huge and the risks are uncontrolled. Taxpayers cannot be expected to bear these risks and meet these costs when they could not possibly afford the sort of pension schemes that teachers have without sacrificing 40% of their income.

Reform of pension ages is not unreasonable. As for the argument being advanced by the NUT that teachers can't work to 68 because it “doesn’t work in a classroom situation”, this is nonsense. There is no link between someone's age and their ability to teach well.

Much of the current debate about reckless government over-spending and ballooning debt concerns the question of fairness between generations. It is not just current taxpayers that pay for teachers’ pensions, the way in which costs are swept under the carpet means that the burden falls onto future generations too. Is it right to expect that future generations should bear this burden? Surely teachers’ benefits’ packages should be funded out of the income of this generation.

The very notion of education embodies a desire to pass onto the next generation, to our future, something good, something true – knowledge and wisdom. Many of the guardians of this important task are patient and driven people who pour their careers into others. The teachers’ unions should represent this voice better. There is no such thing as a free lunch. Someone must pay for public sector pensions. Should it be the teachers who will benefit from them or should it be the next generation? Justice is pretty clear about what the answer should be.

Given the need for reform the question should be how to go about it. Unions digging in their heels on the three points mentioned above will simply not achieve anything. With life expectancy increasing, the cost of public sector pensions is now around 40%, with contributions from teachers themselves amounting to just over 6%. Of course it is hard to be asked to renegotiate the terms of your employment part way through a career, but public sector workers have been lucky to enjoy the benefits they have for as long as they have. Private sector workers lost these benefits some time ago. The one area where the unions are being reasonable is in the linking of pensions to CPI rather than RPI. This does, in fact, change the value of a benefit that has already been promised to teachers for services already performed. This could be regarded as a breach of contract.

Reform doesn’t need to be unreasonable, but the rigid straightjacket of the unions' terms is making it so – and the Government’s attitude is not helping. Responsibility for public sector pensions should be devolved to the lowest level whereas the Government seems to be trying to create one giant public sector pension scheme.  With fiscal decentralisation, hospitals and schools would determine pay and conditions and the police, army, teachers, nurses and so on would have different pension schemes to suit their own particular situation – with employers and employees bearing the cost. A national strike - and certainly co-ordinated national strike action - would then be much more difficult.

In the private sector, this diversity is seen as a good thing and it allows for pay settlements that employees are satisfied with. If living costs in Bradford are lower than in Southampton then it might be that pay and benefits are lower there; on the other hand if schools in a rough area of town are struggling to attract good teachers they may need to be able to offer better settlements. It is the flexibility to pay based on local conditions, the quality of staff and their preferences to trade off pay and pension benefits which allows private sector businesses to thrive. It is nonsense that the heavy unionisation of the public sector prevents this. Indeed, it is centralised pay bargaining that encourages heavy unionisation.

This dispute over pensions provides a unique opportunity for the unions to innovate and find a settlement that will work for teachers, allowing the system to be structured so that those who are ablest and most sought after can earn substantially more than they do at the moment. It’s time teachers realised the NUT isn’t doing a good enough job of looking after their interests.