Public sector pensions 'worth more'

Last Modified: 16 Oct 2008
Source: PA News

The average public sector pension is worth three times as much as the typical scheme still open to workers in the private sector, research has showed.

The majority of new employees in the public sector can still join generous final salary schemes, which are worth around 21% of their salary, according to research group the Pensions Policy Institute (PPI).

This is in line with private sector final salary schemes, which are worth around 20% of an employee's salary, but is three times higher than the typical value of a defined contribution scheme in the public sector, which is worth just 7% of pay.

Public sector employees are also more than twice as likely to be members of an employer-sponsored pension scheme as those in the private sector, at 85% compared with 45% of private sector workers.

At the same time the majority of public sector workers have a defined benefit pension, under which their retirement benefits are guaranteed according to their pay and how long they have belonged to the scheme.

But only around 15% of workers in private companies are active members of one of these schemes, with the rest belonging to less generous defined contribution ones, under which the company only guarantees the level of the contributions it will make, leaving the individual to shoulder all of the risk.

Employers contribute an average of £4,000 a year per worker to public sector pensions, compared with average contributions of just £1,600 per worker to private sector ones, although staff in the public sector also contribute more than those who work for private companies.

The Government has introduced a number of reforms to public sector schemes in recent years, including increasing the normal pension age to 65 for new entrants and raising the level of contributions made by members, but it has also improved the rate at which benefits are accrued.

The PPI said without these reforms the average public sector pension scheme would have been worth 24% of a worker's salary, and even after the reforms the armed forces, police and fire schemes are still worth around 33% of pay. But many commentators have argued that even after these reforms, public sector pensions are still too generous and too expensive.

The PPI said spending on unfunded public sector pension schemes was still projected to soar by 40% over the next 20 years, from 1% of GDP now to 1.4% in 2027/2028. This compared with spending rises of just 17% on long-term care, 16% on health and 14% on state pensions during the same period. Overall, the reforms will save a "relatively modest" £13 billion over the next 50 years, it said.

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