Page last updated at 10:02 GMT, Tuesday, 6 April 2010 11:02 UK

Public sector pensions: New warning from CBI

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Public sector workers face growing calls for changes to their safe pensions

The business lobby group, the CBI, has repeated its call for a review of public sector pensions - claiming they are set at unsustainable levels.

It says a shift away from final-salary schemes - which guarantee a pension based on pay and length of service - is required.

The CBI says that the burden of public sector pensions on the taxpayer will be an unaffordable one trillion pounds.

It says public sector pensions should be based on how much staff contribute.

Final-salary retirement schemes were once widespread for both private and public sector workers.

However, in the past decade and a half they have become an option for only a minority of new recruits in the private sector.

'Difficult area'

The CBI's deputy director general, John Cridland, said: "This is a difficult and emotive area, and not one that should be rushed.

Any new prime minister may be a little nervous about going into battle, within weeks of a general election, against public servants paid to carry out the new government's will
Robert Peston, BBC business editor

"Public sector workers deserve a good retirement, but they and their employers should pay their own way... taxpayers cannot be left to make up the difference," he added.

The business group said the picture was complicated because public sector pensions varied greatly in size and structure depending on the employer.

The CBI urged the next government to set up an independent commission within weeks of taking office to investigate pension costs.

Recently the National Audit Office suggested that the amount of money paid as pensions to many such workers could more than triple in the next 50 years.

Its report on unfunded public sector schemes says they will pay out £79bn by 2060, compared with £25bn this year.

That increase will be due largely to increased longevity and increases in the real earnings of public sector workers.


Last March, the various public sector schemes covered 6.5 million people - 2.75 million staff, 1.59 million former employees who had not yet retired, and 2.13 million pensioners.

The main schemes provide pensions for civil servants, NHS staff, teachers, and local government employees, as well as the police, fire fighters and the armed forces.

The past few years have seen a growing campaign against the "unaffordability" of these schemes, hinging mainly on the fact that most are paid for directly from taxation.

Only local government pensions are paid out of an underlying investment fund.

As well as the CBI's repeated criticisms, attacks on public sector pension arrangements have been launched by the Institute of Directors, accountancy firms, actuaries, think-tanks, City economists and the government's former pension adviser, Lord Turner.

The government has already taken some steps to restrict its future pension liabilities.

Most schemes now have a retirement age of 65 for newer recruits and the civil service scheme has moved to a cheaper "career average" basis for new joiners as well.

The government now intends to cap the cost of pension contributions for public sector employers - in a so-called "cap and share" arrangement - so that future increases in pension costs above a set level will be paid entirely by employees, either in the form of higher staff contributions or lower benefits.

A Treasury spokesman said: "The government has set out substantive reforms to ensure the sustainability of public sector pensions. These include raising the retirement age."

The 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."

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