Public sector pensions cost doubles to £700bn

Public sector pensions cost doubles to £700bn

The cost of public sector pensions has almost doubled in the last two years to £700bn, knocking a hole in the government's future finances, pension experts said yesterday.

Current official estimates are woefully out of line with the actual costs of providing pensions to public sector workers, they said, arguing that the chancellor, Gordon Brown, was underestimating how much money would be needed to pay for pensions.

The £700bn bill accounts for all the future pension costs of current public sector employees, and though a jump in the figures would not affect current spending, it could force the government to cut spending in the next parliament.

The figures, which were produced by actuaries Watson Wyatt and apply a model imposed by the government on the private sector, will also deal a blow to union protests against cuts in public sector pension rights, which are scheduled to take effect over the next two years.

The TUC is scheduled to stage a rally in central London today to protest against increases in the retirement age and other changes that will affect 7 million public sector workers. The PCS civil service union has already staged strikes over the changes.

Critics of the government's handling of the escalating pen sions crisis said rising costs may force an increase in income tax by up to 5p in £1 to cover the shortfall. Council tax bills have already risen steeply, partly to plug deficits in local authority.....continued below

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schemes.

The Liberal Democrats' pensions spokesman, Lord Oakeshott, said: "The cost of promises made to Britain's public sector workers have been underestimated. The government has been burying its head in the sand."

He pointed to a government report published last year that revealed the public sector employs 18% of the population with 17% of the nation's total earnings, "but has 36% - double its share - of pension rights".

A Conservative spokesman said the chancellor was living in a strange world where the government could keep on spending when costs, including the public sector pensions bill, were rising steeply.

Previous government estimates put the value of public sector pensions at £380bn. The new figures reflect the combination of increasing life expectancy and changing economic conditions.

Most public sector pensions are funded from the public purse each year, rather than from investments. Like similar schemes across Europe, they are increasingly considered too expensive to maintain by parties across the political spectrum.

Unions have argued that any cuts should affect all public sector workers, including MPs, who enjoy the most generous pensions in the public sector.

Stephen Yeo, a partner in Watson Wyatt, said: "The government has used an artificially high interest rate to judge how much they will need to fund these pensions."

A Treasury spokesman said: "This is simply an acccounting issue and has no impact on the reality for taxpayers or workers now or in the future. We have published separately and in detail our long-term fiscal projections on how liabilities will actually fall for decades to come and have shown how the UK's fiscal position remains fully sustainable."

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