GOLD-PLATED PUBLIC SECTOR PENSION SHORTFALL COSTS TAXPAYERS £208BN

Taxpayers have been handed a £208bn public sector pensions bill because workers and employers haven’t paid enough in, analysis shows.

Contributions towards the gold-plated schemes have barely covered half the amount actually needed to fund them during the past decade, according to pensions consultant John Ralfe.

The shortfall will have to be paid by current and future taxpayers, even though less than one in five workers are in the public sector and can benefit from the schemes.

The UK’s public sector pensions bill is increasing each year, with some experts putting the total at almost £5 trillion.

Public sector pensions are usually paid as a proportion of a worker’s final salary, increasing with inflation each year for life. The four largest schemes are for teachers, the civil service, the armed forces and NHS workers.

Each year, the Treasury publishes the amount made in pension contributions by public sector workers and their employers. Between 2013-14 and 2022-23, this was £316.9bn.

However, it also releases the Whole of Government accounts, which reveals the current service cost of the pension schemes. This is the amount it costs for another year of pension promises owed to those currently working, which the state will have to begin paying out when they each hit retirement age.

According to Mr Ralfe’s calculations, this amount totalled £524.7bn between 2013-14 and 2022-23, leaving a shortfall for the taxpayer of £207.8bn, or around 40pc.

Mr Ralfe said: “This shortfall means the current generation of taxpayers has not covered the full cost of public sector pensions, which means a big chunk will be left to our children and grandchildren to pay, breaching the principle of intergenerational fairness.

“The Government should cut the cost to taxpayers by reducing the generosity of new public sector pension promises, which also helps close the gap with private sector pensions. Sir Keir Starmer should use his huge majority to start with MPs’ pensions.”

Darwin Friend, of the TaxPayers’ Alliance, said: “There is no doubt that in the long term the public sector pensions system is completely unsustainable. The only question is how long ministers will maintain the charade.

“But for every year that this goes on, it’s working taxpayers who will end up paying to fill the gap, despite not being able to even dream of a similar pension arrangement themselves.

“The real long-term crisis in the public finances is the size of the national debt, which is fuelled by these unsustainable liabilities. The system desperately needs radical reform.”

It comes as public sector unions passed a motion at the Trades Union Congress annual conference last week calling for pay restoration to be a key feature of their political campaigning. 

Restoring public sector pay to the same levels as 2011 in real terms is forecast to cost the economy more than £50bn

Any pay award would also further increase workers’ pensions, despite the UK’s current bill already exceeding the size of the economy when it soared past £2.6 trillion earlier this year. Some experts believe the true figure is even higher, with one economist putting it at £4.9 trillion.

However, union bosses described pensions as “deferred pay” and defended the amount they cost.

National Education Union general secretary Daniel Kebede said: “Public sector pensions are a fundamental part of public sector remuneration and are deferred pay. Public sector workers are ordinary working people and their pensions will keep them out of poverty in old age.

“The cost of public sector pensions is currently 2pc of GDP and is on course to fall back over the next 40 years. Public sector pensions are sustainable.”

Sampson Low, of Unison, said it was “only right the state looks after those that have given a lifetime of public service”.

He added: “Private firms contribute to pension schemes for their workers, just as the Government does for those employed in the public sector. There is clearly a cost to the taxpayer. 

“But if there were no pensions, no one would want to work for public services. Without any staff, there’d be no schools, hospitals, local authorities, universities, police forces or other essential services to deliver for the public.

“Most pensioners who’ve worked in the UK’s public services are anything but wealthy.”

A Treasury spokesman said: “Remuneration in public services is weighted towards pension over pay when compared to reward packages typically available in the private sector.

“Pay, including pensions, for most frontline public sector workers is set through the annual Pay Review Body process to ensure proper scrutiny on decisions.”

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