The cost of public sector pensions will skyrocket by more than 30%, or £900 million, in the next year alone.
Data in this week’s Pre-Budget Report (PBR) reveals how the gold-plated pensions soared from an annual cost of £1.2 billion in 2006/07 to an estimated £3.8 billion in 2009/10. That means costs will have more than trebled in a period of just three years.
The figures make a mockery of Labour’s earlier financial predictions – in 2005, Gordon Brown claimed the cost would be around £600 million in 2008; but it is actually around £2.9 billion – and left the party open to accusations of “incompetence or wishful thinking”.
Had the government managed to keep costs at 2005’s predicted levels, it would have been able to provide every pensioner with an additional £200, according to the Liberal Democrats.
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Incompetence of wishful thinking?
“How on earth can the total public sector pensions bill be allowed to rocket through the roof when private sector pensions are being cut to ribbons and ordinary taxpayers are losing their jobs and tightening their belts,” asks Lib Dem pensions spokesperson Lord Matthew Oakeshott.
"Every year the Treasury persistently and grossly underestimates the cost of public sector pensions. It must be down to either incompetence, wishful thinking or both.
Oakeshott went on to suggest that the real reason for ballooning costs was that the government had “bottled out of raising the retirement age in the public sector for many years to come”.
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Tories hint at public sector crackdown
According to the Pensions Commission, the public sector accounts for around 20% of jobs, but almost 40% of pension entitlements built up.
One of the key differences between public and private sector pensions is that the lucrative final salary schemes are still widely available in the former, whereas in the private sphere, companies have closed four out of five such plans to new members.
Wading into the argument, Conservative leader David Cameron claims his party will, if elected, consider switching public sector workers to the defined contribution, or money purchase, schemes more commonly found in the private sector.
“We have got to end the apartheid in pensions,” Cameron is quoted as saying in the Financial Times.
Such a move could potentially save taxpayers billions of pounds but would undoubtedly prove controversial, given the ferocity with which the public sector defends its gold-plated pension.
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