The Public Sector Pensions Commission accuses successive governments of hiding the true cost of public sector pensions and raised fresh concerns about the state's £1 trillion of retirement promises. In a comprehensive report it calls for urgent reform of the civil servants' gold-plated benefits. According to its analysis, public sector employees must save more than 40% of their salary each year to fund their benefits but the amount actually being set aside is just 20%, of which employees are providing only 6% themselves.
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The shortfall has left taxpayers with a growing bill to plug the gap. In 2008, the top-up was £2.29bn. By 2011, it is expected to be £4.6bn. Including employer contributions made by Government departments, the cost to taxpayers in 2011 is forecast to be £18bn, or £700 per household. However, the Commission claimed that "properly measured, the current service cost is actually over £35bn a year". Mark Littlewood, director-general of the Institute of Economic Affairs which produced the document, said: "This report underlines the urgent need for the Government to take action. Successive governments have avoided this issue for far too long."
The Commission said the principal of reform should be to ensure pensions do not require taxpayer top-ups in future. According to the Office for Budget Responsibility, the £4.6bn top-up predicted for 2011 will rise to £9.4bn in 2015. Among the Commission's proposals are raising the retirement age from 60 to 65, reducing the rate of accrual, and raising the employee contribution rate. More radical suggestions include switching to career average schemes or even a hybrid final salary and defined contribution arrangement.
The coalition Government has moved pension reform to the top of the agenda, appointing the former Labour minister John Hutton to chair a commission on the matter. The size of public sector pension liabilities has been estimated at £770bn by the Treasury and £1.18 trillion by actuaries Towers Watson.
