By Vivienne Russell
Public sector pensions are not affordable in their current form and need to be levelled down to private sector levels, according to a pensions expert.
Public sector pensions are not affordable in their current form and need to be levelled down to private sector levels, according to a pensions expert.David Davison, a director at independent actuaries Spence and Partners, told Public Finance he was concerned by the evolution of a two-tier pension system. The differences between public and private sectors had become a ‘huge gulf’. ‘There needs to be some sort of parity,’ he said.
But reforming private sector pensions to make them consistent with the public sector was not achievable. ‘The private sector cannot afford to pay these levels of benefit. There’s too much of a risk exposure. Levelling down has to be the only way,’ Davison said. ‘The civil service has taken an enlightened first step by moving to a career average scheme.’
Pensions Policy Institute research has shown that employers contribute around £4,000 a year per employee in the public sector, compared with around £1,600 a year in the private sector.
Public sector employers are also much more likely to be members of an occupational pension scheme than their private sector counterparts.
Davison called for an open and honest debate. ‘Like the alcoholic, you have to recognise that there’s a problem before you can deal with it. But there needs to be political will to address the issue,’ he said.
Nigel Keogh, technical manager for pensions at CIPFA, said: ‘Any debate about the future of public sector pensions should avoid becoming simply a “race to the bottom”.
‘A much wider debate is needed – one that takes into account the decline in occupational pensions over the past ten years and the implications this may have for long-term public finances.’
