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Report attacks public pension costs

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Public sector pensions cost twice as much to provide as previously thought and must be reformed if they are to be sustainable, a report indicated today.

The Public Sector Pensions Commission said workers in the public sector would need to save more than 40% of their salary each year, including their employer’s contribution, to fund the final salary pension benefits they are building up.

But the actual amount they contribute is half this level at just 6% for workers and 14% for their employer, according to the Public Sector Pensions Commission, a body set up by the right-wing Institute of Economic Affairs and the Institute of Directors.

A lack of transparency about the schemes is also masking their true cost due to the accounting methods used by the Government, it claimed.

The commission estimates that the schemes will cost the Government around £18bn during the coming financial year, using the Government’s own accounting methods, but it warned that this figure nearly doubled to £35bn if the liabilities were “properly measured”.

Unlike private sector final salary pensions, the public sector schemes are also unfunded, meaning that no pot of money has been set aside to pay future pensions, and as a result the liabilities of the schemes are estimated to be between £770bn and £1.18bn.

Commission chair Peter Tompkins said: “A true assessment of the value of pensions in the public sector today shows that they are worth twice what the Government suggests in its calculation of the contributions that public sector employers pay.

“It is a matter both of justice and good economics that public sector employees and employers should bear the full cost of their pension provision.

“The question of why the majority of the workforce should be expected to pay through their taxes to support pensions that they cannot afford for themselves must be raised.”

Unison accused the commission of “scaremongering” over the cost of pensions.

General secretary Dave Prentis said: “The self-styled Public Sector Commission are just stool pigeons for the Institute of Directors – it’s not independent and it’s not a commission, no matter what they call it. They are just using it as a platform to put forward their poisonous ideas.

“Their idea is to cut public sector pensions by half. If you cut payments by half, millions of people will be heading for pensions credit and we all know who will pick up that bill.”

Brian Strutton, GMB national secretary for public services, said: “It’s bad enough that public sector workers are being told they’ve got to lose jobs, take pay cuts, have their pensions slashed - now some self-serving, right-wing lobbyists want a £2 billion pension tax on public sector workers.

“The hundreds of thousands of public sector workers paid little more than the minimum wage will not be able to pay this.

“By all means make those at the top end who benefit most pay more but not those who cannot afford it.”

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