Private workers 'pay as much' for public sector pensions as their own

People employed by private firms are in effect paying 91p into the pensions of public sector employees for every £1 they put into their own
12 April 2012

Private sector workers are paying almost as much into 'gold-plated' public sector pensions schemes as they do into their own, new analysis have revealed.

Employees who work for private companies are contributing 91p towards the pensions of public sector employees for every £1 they invest in their own schemes.

The figures are set to provoke fury among taxpayers groups as public sector workers are able to retire early and enjoy final-salary pensions - which are nearly extinct in the private sector.

Private workers fork out a total of £12.8 billion-a-year in taxes which pay for the pensions of their public sector counterparts. But they are only putting £14 billion a side for their own retirement.

The analysis, compiled by the Liberal Democrats, will fuel fears that Britain is facing a pension's timebomb as a result of the 'gold-plated' deals which have been stitched up by the public sector unions and the Government.

The last official figures put the total public sector pensions liability at £540 billion. But experts have accused the Government of seriously underestimating the problem and put the real figure at between £700 billion and £1 trillion.

The bill represents how much the Government would have to pay out if all the pensions it owes became due at once, and is used as a key indicator of future burdens faced by the taxpayer.

The respected Institute of Economic Affairs has warned that the liabilities will soar in coming years to between £1.1 trillion and £1.2 trillion by 2010.

The analysis, based on the Office for National Statistics Pension Trends, concluded that total employer contributions - funded by the taxpayer - to public sector pensions in 2005 was £16.1 billion.

Public sector employees accounted for 20.4 per cent of the workforce, so the study attributed four-fifth's of the public sector pension bill (or £12.8 billion) to private sector workers.

In comparison, total employee contributions to private pension schemes was £14 billion.

So for every £1 put into a pension scheme by the 22.8 million private sector workers, they also contributed 91p into a retirement payment for the 5.8 million public sector workers.

This equates to every private sector worker paying £561-a-year into public sector pensions, compared to £614 into their own.

Liberal Democrat Work and Pensions spokesman Danny Alexander said: "That private sector workers are paying almost as much in tax for public sector workers' pensions as they are contributing to their own is a worrying indication of the gap."

However, pensions expert Stephen Yeo, a senior consultant at Watson Wyatt, said that the true cost of public sector pensions could be more than three times higher.

He pointed out that most public sector pensions are unfunded, so current contributions to them from the taxpayer do not cover any future costs.

Mr Yeo estimates that to fully fund public sector pensions, a total of £52 billion would have been needed to meet the bill in 2005. According to the Liberal Democrat analysis, that would cost private sector workers £41.8 billion - or £1,835 for every worker.

He said: "Eventually, taxpayers will have to pay £2.99 for the pensions public sector workers that year for every £1 they contributed themselves."

Corin Taylor, Research Director at the TaxPayers' Alliance, said: "These figures are explosive in their implications. Public sector unions can no longer justify the extremely generous pension benefits that their members enjoy.

"If Britain is not to face a new social divide, politicians must stand up to the unions and urgently reform public sector pensions. The civil service retirement age should be raised to the state pension level for all employees as soon as possible."

In May, the man appointed by Gordon Brown to oversee pension reform warned that gold-plated pensions for the public sector have created a dangerous two tier system.

Lord Turner, the architect of Labour's retirement reforms, criticised the widening gap between public sector employees and the rest of the workforce. He warned that public sector workers will soon be able to retire eight years earlier than those in the private sector.

And he claimed Britain is storing up serious problems. Of the country's 29million workers, a fifth are in the public sector and can retire at the age of 60 - some even younger. But the remaining four-fifths of the workforce will not be able to claim their state pension until they are 68 under the Government's pension reforms.

Mr Brown was attacked in 2005 for a humiliating U-turn over its long-awaited reforms to public sector pensions. He outraged critics by dropping plans to raise the retirement age from 60 to 65 for existing NHS staff, teachers and civil servants.

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