From employees to public sector workers, public sector pension schemes have been transforming into a giant cash cow for big business.
But it is the employees themselves who have been most impacted, with public sector employees now receiving far more money than their private counterparts.
What’s in a name?
What’s the deal with public pension funds?
Pension funds, which are privately run and not subject to the same oversight as public companies, are regulated by the Financial Services Authority (FSA) to make sure that their funding is fair.
They are supposed to be an “appropriate financial instrument” for workers, providing a level of security that is appropriate for their age, experience and the size of their pension plan.
In recent years, the FSA has become a battleground for employers.
The UK Government introduced an anti-money laundering (AML) system in 2017 which was introduced in response to the Bank of England’s (BoE) £3.6bn settlement with the European Union over the LIBOR rate scandal.
This is a problem for public sector firms because the FSA is the body which sets the rules for the investment portfolio of private firms.
The FSA has been criticised for allowing financial firms to abuse their power over public sector funds.
In April this year, the European Parliament passed a resolution calling for the FSA to be reformed, saying it was “the ultimate source of financial and managerial corruption” and should be scrapped.
Public sector employees are the ones being forced to pay the largest sums of money to private pension funds, despite having fewer rights and responsibilities than other employees.
For example, the pension scheme for public servants, the National Pension Scheme (NPS), pays more than £1bn a year, while employees of the UK Department for Work and Pensions (DWP) get just £750 a year.
Employers have also been able to reduce the amount of pension contributions they pay employees.
The FSA has said it will allow companies to reduce employee contributions by up to 5% in certain circumstances.
But the number of people in employment who are paid out of their own pockets has continued to rise, with an average of just over 12% of employees being paid out-of-pocket by the end of 2018.
What does this mean for public service employees?
The National Pension Service (NSP) has been privatised in many parts of the country since 2017, including London, Birmingham, Leeds and Cardiff.
It was created to provide workers with a guaranteed minimum of £15,000 a year in a defined contribution scheme that will not change.
The NSP will be sold off in 2018 to private firms and the government will be left with a total of £8.7bn.
This amount is equivalent to the entire amount paid out to employees by the private sector.
It will be up to the private firms to manage this funding, which is likely to be a big challenge given the growing concerns about the NHS, and the financial pressures facing public sector companies.
What happens next?
There are many options for the government to deal with the public sector funding crisis, but the government has so far refused to use any of them.
Instead, the government is planning to sell off some of the assets in the NSP and to take a stake in some of its assets.
However, it will not be able to sell assets without first securing the support of the public.
This means that the Government will need to pass legislation in Parliament in order to be able be able sell the assets.
The government could also seek to have a share in the assets sold to a company.
This would be a politically difficult move given that the Treasury would not be legally able to hold shares in a company, and would need to negotiate with a number of other entities to be granted the right to buy the assets, as well as securing approval from Parliament.
What the government does need to do is introduce a clear plan for what is in the public interest and why public sector jobs should be protected, and how it can tackle the crisis.
There will be plenty of debate about what to do next.
But for the future of public sector employment, there will be a real battle on for public support.