Taxpayers face public sector pension black hole of £1 trillion, CBI warns
- From: "MCP" <gf010w5035@xxxxxxxxxxxxxxxx>
- Date: Sat, 27 Dec 2008 17:44:20 -0000
http://www.telegraph.co.uk/finance/personalfinance/pensions/3758169/Taxpayers-face-public-sector-pension-black-hole-of-1-trillion-CBI-warns.html
A damning report by the CBI accuses ministers of trying to hide the vast
cost of looking after state employees in old age, which works out at £32,000
for every taxpayer in Britain.
It also claims civil servants, teachers and NHS staff are being allowed to
retire on unaffordable gold-plated schemes based on their final salaries,
far more generous than those earned by workers in the private sector.
The employers' organisation is calling on the Government to force its five
million-strong workforce to carry on in their jobs on past 60 in order to
reduce the burden of their pensions on future generations.
It also says an independent body must be set up to calculate the true cost
of unfunded public sector pensions and work out how it can be met,
particularly now that the economy is heading into a recession and national
debt reaching record levels.
The report comes as The Daily Telegraph's Justice for Pensioners campaign
has highlighted how nine million older people in Britain are rapidly losing
income from their savings and investments, as the economic crisis has driven
interest rates down to just 2 per cent.
John Cridland, the deputy director-general of the CBI, said: "Public sector
workers should have a good retirement, but we need to talk openly about how
we split the bill. The debt that is being racked up is truly eye-watering
and is set to get much worse.
"Taxpayers who are struggling to build their own personal pension will be
lumbered for decades by the cost of covering public sector workers who
retire years earlier on risk-free pensions.
"The private sector has had to face up to what its pension commitments will
cost, and has made huge efforts to put its own house in order. All we ask is
that Government does the same for its five million employees."
Jenny Willott, the Liberal Democrats' work and pensions spokesman, added:
"The massive unfunded public sector pensions liability is a problem which
will not go away and the Government must face up to this."
In recent years spiralling costs, red tape and greater life expectancy have
forced most private firms to prevent new employees joining generous "defined
benefit" pension schemes, such as those that pay pensioners a guaranteed sum
each year equal to as much as two-thirds of their final salary at
retirement.
Just 11 per cent of private sector workers now have final salary pensions,
according to experts, and the proportion is set to drop still further as
falling global stock markets create a £136bn deficit in the funds.
The vast majority will only get a defined contribution pension that offers
no guarantee of how much they will be left to live on as they grow older.
By contrast, an estimated 90 per cent of the public sector workforce is
signed up to a defined benefit scheme, with the average pension said to be
worth three times as much as a private sector one. More than 17,000 have
retired with packages worth £1m, according to recent research.
Pension schemes for local government officers and MPs are funded but five
million people, including civil servants, teachers, NHS staff and members of
the Armed Forces, are enrolled in schemes for which no money is set aside.
In 2006 the Government estimated the cost of the unfunded liabilities at
£650bn but since then it has refused to publish an updated cost.
That figure is likely to be an underestimate as it relies on an interest
rate of just 1.8 per cent and unrealistically low life expectancy figures.
In its new report, Clearing the Pensions Fog, the CBI has put the total cost
at £915bn but admits even this is a "conservative figure".
"Many commentators calculate the true liability figure to be well over £1
trillion," it says.
Rather than reducing the burden, the CBI says the Government is actually
allowing it to increase by £10bn every year because not enough money is
being paid in contributions.
Private workers actually pay more towards public sector pensions than their
own, through taxes. They also pay higher rates of National Insurance and
retire later.
Previously the gold-plated pensions of state workers were defended on the
grounds that they earned less during their careers, but after a decade of
salary rises under Labour this is no longer true.
The employers' group is urging ministers to set up an independent commission
to analyse the cost of the schemes so the two-tier system can be reformed.
It also wants employee contributions to rise, and for younger, desk-bound
public sector workers to work on until 65, rather than the 60 at which they
are currently allowed to retire.
Private sector workers will have to stay in their jobs until 68 by 2050,
while attempts to raise the retirement age for state employees were ditched
after strike threats in 2005.
However some campaigners say far more drastic reforms are needed in order to
make the schemes affordable, and to reduce resentment among taxpayers who
face having to work harder while paying for the pensions of their public
sector counterparts, then retiring later on far smaller sums.
Ruth Lea, economic adviser to the Arbuthnot Banking Group, said new public
sector employees should only be allowed to join cheaper defined benefit
schemes and that existing contracts should be renegotiated, or the
Government may one day have to renege on promised payouts.
"At some point a horrible nettle will have to be grasped, that these defined
benefit pensions are unaffordable," she warned.
HM Treasury insisted: "Reforms introduced by the Government - including
changes to the age at which pensions are paid, and cost capping - will
ensure substantial savings for the Government."
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