This site is intended for health professionals only

Public sector pensions "too costly"

Public sector employees are receiving pensions that are twice the size they should be compared to the amount of money they pay into the schemes, a report says.

The research from the independent Public Sector Pensions Commission has found that defined-benefit pensions in the public sector cost twice as much to provide as previously thought and are not sustainable in their current form.

The study said public sector employees would need to save more than 40% of their salary each year, including their employer's contribution, to fund the final-salary pension benefits they are currently building up.

But the actual amount they contribute on average is half this level at just 6% for workers and 14% for their employer.

Accounting methods used by the government are masking the true cost of providing these pensions and creating a lack of transparency, 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.

Peter Tompkins, fellow of the Institute of Actuaries and chairman of the Commission, said: "A true assessment of the value of pensions in the public sector today shows that they are worth twice what the government suggests in its calculation of the contributions that public sector employers pay."

Copyright © Press Association 2010

Public Sector Pensions Commission

Your comments (terms and conditions apply):

"This is a dreadful state of affairs. We put up with poor pay and conditions in jobs with far higher academic and professional requirements than is reflected in the pay scales. The new government must think all of their birthdays have come at once - they can excuse this abuse by saying it is needed in the current financial climate and the public believe them. Have we forgotten they tried to strangle the NHS 10 years ago? - Susan, Newcastle upon Tyne

"I can't help but agree with the above, comparing us now to private sector workers is irrelevant and harmful. We're not going to be retiring with millions in the bank like some! As it is, our pension age is increasing - currently 66 for myself. Thankfully, I do a job that will be possible for me to do past 60, I'm not so sure about this for some of my colleagues who are still doing hard physical nursing jobs ... As said above, change things for new employees (and see recruitment drop?) Don't make retrospective changes for those of us who've already worked for the NHS for over 25yrs!" - Angela Goodall, Sussex

"Most nurses who commenced work in the 1980s were paid very low wages. We were told what our contributions towards a pension would be, and were not given the option to pay additional voluntary contributions. We were led to believe that the pension was perfectly adequate for our old age. We have had no opportunities (as most private sector workers) to earn any bonuses whatsoever. We have been led to believe that the contributions made would be carefully invested soundly for our inevitable retirement. We trust that any decisions made as regards our pensions as they currently stand will not change for those who have already been paying in for many years and have no other option than to rely upon their provision in retirement" - F Harris, Sussex

"I agree with all of the above ... been qualified since 1981 and STILL waiting for a decent wage and pension! MPs, government etc all talk rubbish and have absolutely NO idea ... let them live on the minimum wage and pension they would soon start to weep and whinge ... " - Jill Burrows, Suffolk

"I have worked as a nurse since 1981 and have never had a decent wage. I contribute to the pension scheme in the hope of having some quality of life when older. Maybe it would be better to just spend everything now and live on benefits - it seems that when you make provision you just get abused. Private sector get paid much more, have many more benefits/bonus payments while they work" - Chris Allison, London

"I agree we have paid our contributions- we did not cause the deficit why should we pay for it. The bankers caused it and they were bailed out and 'excused' punish them not us!!" - Julie Coupland, Northants

"We have paid our contributions in good faith expecting a decent pension. The government bailed out the banks, now they will have to bail us out and ensure we get the pensions we were promised. They will have to change the scheme for people who join from now on. Its always the same those that try to save for the future get dumped on, if I hadn't worked I would still get a state pension and be entitled to benefits as well!" - Mary Melhuish, Welshpool

"Those of us currently in the NHS pension scheme did not set it up and should not be penalised because the people who did so did not look into the future. Also, private sector jobs with the level of responsibility that mine does pay a lot more than mine does and so higher contributions are possible" - Julie McGowan, Lancashire