Total Reward, the Great Recession and the Proposed Public Sector Pension Reforms: Evidence from the Public vs. Private Sectors in the UK

After three decades of steady and strong growth, real wages in the UK peaked in 2009 to fall since then as inflation outstripped nominal wage gains. Although by no means being the main cause of the UK's crisis of (public) pension funding, the Great Recession has accelerated the need for immediate pension reform. The Public Sector Net Cash Requirement (PSNCR) brought benefit entitlements under scrutiny, as unsustainable levels of public debt must be cut back. As a result, radical changes have been announced to pension schemes across the public sector from April 2015. Both the temporary decline in hourly wages and the permanent manipulation of pension generosity will have lasting and sizeable effects on the total lifetime remuneration of affected cohorts of workers and hence prompts a number of questions: How will the proposed pension changes affect the remuneration in public vs. private sector jobs in the UK and who will be most affected? How do these occupations compare in terms of the negotiated pensions across the NHS, teachers', Local Government and Civil Service schemes? How will these changes affect the relative remuneration of the public vs. private sector and hence impact the public sector's ability to attract and retain an adequate supply of suitable able and qualified staff? Will the reforms induce sector switching of employees from the public to the private sector or change the quality of new entrants to the public sector? How will these changes interact with the recent declines in earnings in various occupations during the Great Recession? How will these results change once we take into account the possibility that members in different pensions schemes change their opt-out behaviour from their public sector plans after the reforms?
This research project will answer these questions combining the concept of Total Reward, a recently developed methodology to value various components of job remuneration over the lifecycle, with simulation methods that are fed with the proposed changes to the parameter setting. This conceptual method for the measurement of Total Reward makes average careers in specific occupations and sectors comparable in monetary terms and allows us to simulate the impact of policy changes on absolute and relative remuneration as well as on switching behaviour of employees across sectors. Total Reward includes conditions of work (hours of work, paid holidays, the likelihood of unemployment) and all direct financial remuneration when working (earnings, bonuses, employer provided health insurance) and deferred as pension payments in the future.
We will undertake comparisons between employees of specific educational groups in the public and private sector on average and compare the public vs. the private sector within occupations, whenever applicable. When possible, we will also take into consideration gender differences and will explore the extent of regional inequality in terms of total remuneration.

The research undertaken and its findings will be of interest and/or benefit to:
1. Government departments and other bodies with interest in monitoring total reward and pension reforms. These include: the Office of Manpower Economics (OME) and the Public Sector Pay Review Board, the Department of work and Pensions (DWP), the Low Pay Commission (LPC) and the Department of Business, Innovation and Skills (BIS).
2. The Local Government Association and Devolved Governments of the UK. They will be interested particularly in the spatial distribution of economic prosperity.
3. The Government Equalities Office (GEO) and the Equality and Human Rights Commission (EHRC). They will be interested particularly in the gender distribution of economic prosperity.
4. Representatives of workers in the UK, and in particular the TUC, as well as representatives of employers in the UK, and in particular the CBI.
5. The research also impacts on the wider public, in particular UK residents affected by the pension reforms.
These bodies will benefit from this research by increasing their understanding of how the recession and the pension reform will influence:
- wealth and income distribution between public and private sector and between low and high income earners.
- sorting into to public and private sector and switching behaviour across sectors.
- wealth and income distribution between London and the South-east and the rest of the UK (especially the Local Government association and Devolved Governments of the UK).
- gender specific wealth and income distribution (especially the GEO).
More generally the wider public will benefit from this research by increasing their understanding of:
- the severity of the reform and whether it will lower or increase inequality.