CBI renews call to review public sector pensions

A report by the CBI says a more affordable system is needed if the “trillion pound burden” on the taxpayer is to be contained.

All public sector staff should be moved off guaranteed defined benefit schemes, says the report

It claims there is an annual unfunded public sector black hole of £10bn, partly because staff contributions are “out of kilter” with payout levels.

The business group’s report adds that the picture is complicated because public sector pensions vary greatly in size and structure depending on the employer.

It says some, such as the local government scheme, have more transparent arrangements and are funded, unlike the civil service scheme, which is unfunded.

Public sector pension benefits are on average worth 26 per cent of salary every year, far higher than private sector norms, and the total cost will increase as people live longer, it claims.

The CBI report, Getting a Grip: the route to reform of public sector pensions, urges the next government to set up an independent commission within weeks of taking office to investigate pension costs.

It says the public sector needs to “pay its way” for its pensions.

All public sector staff should be moved off guaranteed defined benefit schemes, which include final salary and career average pensions, says the report.

CBI deputy director-general John Cridland said: “Public sector workers cannot lose the pensions pot they have accrued so far, but they will have to adapt in the future. We think that, for many public sector employers, shifting to a notional defined contribution pension could be the best way forward. It would ease the burden on taxpayers and offer public sector workers a secure and sustainable pension.”

A Treasury spokesman said: “The most important measure of public sector pension affordability is the government’s ability to pay pensions as they fall due - the cost of pensions is projected to remain at under 2 per cent of GDP for the foreseeable future.”

Shadow chief secretary to the Treasury Philip Hammond said: “It is already widely accepted that reform is needed and we will work to achieve consensus to move forward.”