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Public sector pay rises outstrip private settlements

1 April 2010

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A new study has revealed that the wages of private sector workers grew at a slower rate during the first half of the decade compared to public sector employees.

Public servants enjoyed an average annual rise in pay of 2.3% between 2001 and 2005. Those working for private companies saw a 1.5% growth.

According to the Institute for Fiscal Studies (IFS), the pensions of public sector workers boosted their earnings to double the level of those in the private sector.

Once the different pension provisions were taken into account, public sector workers actually saw their pay and pension benefits rise by an average of 2.4% a year between 2001 and 2005, compared with a rise of only 1.3% a year among private sector workers.

People who were employed in the public sector were far more likely to have access to generous final salary pension schemes than those in the private sector, where the majority of these schemes have been closed to new members, and in some cases to existing ones as well.

They are being replaced by less generous defined contribution schemes, under which the individual has to shoulder all of the risk of investment volatility and increased life expectancy.

The IFS said that while there had been little change in either the membership rate or the accrual rate of pension benefits among public sector workers during the period, there was a long-running decline in membership of final salary schemes in the public sector.

Copyright © Press Association 2010

The Institute for Fiscal Studies