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Public sector pensions need reform says commission

7 July 2010

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The current public sector pension schemes are unsustainable and need to be reformed, according to a report.

The Independent Public Sector Pensions Commission said the pensions are costing twice as much to provide as earlier thought.

The body said employees in the sector would need to put aside over 40% of their earnings each year, including their employer’s contribution, to fund the final salary pension benefits they are building up.

But the actual amount they contribute is half this level at just 6% for staff and 14% for their employer, the commission said.

A lack of transparency about the schemes is also masking their true cost due to the accounting methods used by the government, it claimed.

The commission estimates that the schemes will cost the government around £18bn during the coming financial year, using the government’s own accounting methods, but it warned that this figure nearly doubled to £35bn if the liabilities were “properly measured”.

Unlike private sector final salary pensions, the public sector schemes are also unfunded, meaning that no pot of money has been set aside to pay future pensions, and as a result the liabilities of the schemes are estimated to be between £770bn and £1.18 trillion.

Copyright © Press Association 2010

HM Treasury

Your comments (terms and conditions apply):

“Yes I also believe the pensions are fully funded in as much that todays contributors pay current pensions. this cannot possibly be sustained unless there is a massive increase in current contributions. Pensions paid on past salary scale will be nothing to the immediate future were tomorrow public sector pensioners will be “entitled” to extremely large lump sum payment and a very generous monthly pension. Who will continue to fund this extravagance when many private pensions have gone to the wall” – Nurse, Lancs

“At the Leeds Choice information day re pensions we were told that NHS pensions were fully funded by contributions so unless we were lied to this should not be an issue, though of course the gutter press will doubtless highlight those who get large pensions – which they have funded – rather those who get much more modest pensions, which again they will have self-funded” – Name and address withheld