16 October 2008
By Vivienne Russell
The cost of public sector pensions is likely to grow by 40% over the next 20 years according to research published this week.
Researchers from the independent Pensions Policy Institute calculated that the public sector pensions bill will increase from 1.0% of gross domestic product to 1.4%. This 40% rise is far in excess of projected growth in the cost of long-term care, health and state pensions over the same period. Savings generated by reforms of public sector pension schemes are likely to be 'relatively modest', the PPI said.
The research, published on October 16, also found that the average value of public sector pensions had slipped from 24% to 21% of salary following government reforms. This still exceeds the value of a typical private sector defined benefit scheme, worth 20% of salary.
PPI director Niki Cleal said that, despite the government's overhaul of public sector pensions, there were still significant differences between pensions in the public and private sectors.
'Public sector employees are more than twice as likely as private sector employees to be a member of an employer-sponsored pension scheme,' she said. 'The majority of public sector employers have a defined benefit pension linked to their final salary. In the private sector, two-thirds of employers have closed their defined benefit schemes and many now offer less valuable, defined contribution pensions.'
TUC general secretary Brendan Barber said: 'Public services are labour intensive. Wages therefore make up much of the cost. If public servants are to have decent pensions then this will inevitably be a significant cost.'
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