CBI demands public sector pension reform

THE public sector must ditch “unsustainable” final salary pension schemes if a trillion pound burden on the taxpayer is to be contained, business group the CBI said today.

The CBI’s research estimates there is a financial black hole of £10bn a year in unfunded public sector pensions, with the  total overall liability for these schemes now topping one trillion pounds, or £40,400 for every UK household.

The organisation says the current approach to public sector retirement is just not sustainable.

Public sector pension benefits are on average worth 26% of salary every year, which is far higher than private sector norms – and the total cost will increase as people live longer.

To compound the situation, the state workforce has grown by almost one million in the past decade – as Labour has pouted billions into the public sector – and now stands at 6.1 million, or one in five workers.

The CBI is urging the next government to set up an independent commission within weeks of taking office to fully investigate pensions costs.

Its report “Getting a grip: the route to reform of public sector pensions” sets out some of the key issues the commission should consider.

The CBI believes the public sector needs to ‘pay its way’ for their pensions, so that pensions are fully linked to the contributions made by staff and their employer, with no hidden taxpayer subsidy.

But pension pots which have already been accrued must be protected, it says.
It argues that all public sector staff should be moved off guaranteed ‘defined benefit’ schemes, which include final salary and career average pensions.

For staff working in the NHS, the civil service and in state schools, the CBI  thinks staff should migrate to pensions based on the Swedish model of ‘notional defined contribution’, which will provide guaranteed pensions without unpredictable taxpayer liability.

The CBI is also calling for the retirement age for existing and new public sector workers to be raised to match the state pension age.

Presently there will be state workers who retire in the 2040s at the age of 60 on a full pension, when the state pension age will be at least 68.

John Cridland, deputy director-general of the CBI said: “This is a difficult and emotive area, and not one that should be rushed.

“Public sector workers deserve a good retirement, but they and their employers should pay their own way. The pensions black hole is over one trillion pounds and rising, and taxpayers cannot be left to make up the difference.

“A new government needs to acknowledge the problem, establish the true costs and let the taxpaying public decide what they are prepared to pay for.”