The government’s attempt to trim public sector pensions will only deliver significant cashflow savings after 20 years at the earliest, according to a new report from the Centre for Policy Studies.
The report, authored by Michael Johnson, says nearly £4 of every £5 paid in pensions to public sector workers will come from the taxpayer, and predicts that another round of public sector pension reforms will be required before 2020.
Johnson points to OBR forecasts that show that even after the latest reforms, the government’s cashflow shortfall will rise from £200 million in 2005-06 to £15.4 billion in 2016-17, a 77-fold increase in 11 years.
He calculates that employers’ contributions of an extra £17.2 billion add up to an annual burden on taxpayers of over over £32 billion – the equivalent of £1,230 for every household in the country.
Johnson has attacked the Coalition’s claims that they have achieved a material reduction in the total public sector pensions liability as meaninglessly vague.
Johnson has called on the government to put all its modelling assumptions for the reduction of the liability into the public domain and to start to prepare the public sector for a risk-sharing arrangement such as a cash balance scheme, en route, ultimately, to a wholly defined contribution framework.
Tim Knox, director of the Centre for Policy Studies says: “We must recognise that the Coalition reforms to public sector pensions do not go nearly far enough, are unaffordable – and cannot last. Why should future generations pick up the bill for the pensions of public sector workers, people who on average are likely to be far better off in their retirement than their wealth-creating private sector peers?”