Clegg promises action on Britain’s £18bn a year public sector pensions

By
James Chapman
Last updated at 1:32 PM on 15th June 2010

Economy ‘will only grow 2.6% in 2011′ - far less than predicted by DarlingInterest payments on vast debt left by Labour will be £42billion this yearStructural deficit £5bn higher than Labour had claimedPublic sector pensions will cost taxpayers a shocking £18billion this year - equivalent to the annual budgets of the Army and Royal Navy combined.
Around £4billion will go to the 2.2million people already on government pensions and the remaining £14billion into pension contributions for civil servants still in work.
Deputy Prime Minister Nick Clegg said the gold-plated schemes were unfair and unaffordable - a clear sign that they are top of a list for Government cutbacks.
Pension problems: Nick Clegg speaking yesterday about the economic challenges facing Britain
The Office of Budget Responsibility - set up by the Government to stop politicians fiddling economic figures - said the cost of public sector pensions will more than double by 2014.
In its first published assessment, it also dramatically downgraded Labour’s rose-tinted forecasts of a return to growth - paving the way for more tax rises in next week’s budget.

The OBR suggested that an extra £2.4billion a year above previous estimates will have to be raised in taxes - possibly through a VAT hike.
In a devastating analysis it also said: The economy will grow by only 2.6 per cent in 2011, far less than the 3.25 per cent predicted by former Chancellor Alistair Darling in March; Interest payments alone on the vast debt left behind by Labour will be £42billion this year and £67billion within four years; The structural deficit - the amount the Government will overspend by even after economic growth - is £5billion higher than Labour had claimed.The only good news was on state borrowing, which is forecast at £155billion this year, below the £163billion predicted in Labour’s last budget.
Chancellor George Osborne may have to announce additional public spending cuts or tax rises of £34billion in the budget, an economic think-tank said yesterday.
The Institute for Fiscal Studies said such tough steps would be necessary if Mr Osborne wanted to meet his previous pledges of speeding up deficit reduction.
Every family would be hit by more than £1,000 a year on average, the IFS said.
As the economy has slumped, resentment has grown over private sector workers being forced to subsidise the pensions of their public sector counterparts.
At the same time, companies are scrapping or scaling back final salary schemes.
Almost 90 per cent of state employees receive final salary pensions, compared with just 16 per cent of workers in the private sector.

A legacy of debt: New Chancellor George Osborne, left, and his predecessor, Alistair Darling. Osborne said the Government had inherited ‘one of the largest budget deficits in the world’ from Labour
Mr Clegg said: ‘Of course public sector workers deserve a decent income when they hit retirement, no one doubts that.
‘But the current situation is not fair. Private sector workers have already seen final salary schemes close, while returns from defined contribution schemes fall. So can we really ask them to keep paying their taxes into unreformed gold-plated public sector pension pots?
‘It’s not just unfair, it’s not affordable. As we face up to living within our means, we cannot ignore a spending area which will more than double within five years.’
Government sources said a commission would be set up to examine reform of public sector pensions.
Although pension rights that have already been accrued cannot be touched by law, existing members of public sector schemes are likely to see terms and conditions changed. One possibility would be to make public sector workers pay more into their pensions.
Mr Clegg said the first scheme to be axed will be that for MPs, which is one of the most generous in the country.
And he signalled that public sector pay is also in his sights: ‘When there has already been pay restraint in the private sector, when the public pay bill now costs the country £160billion every year, and when the alternative is greater job losses, we cannot refuse to now look at public sector pay too.’
Corin Taylor, of the Institute of Directors, said: ‘We just can’t continue to keep paying out this amount of money.
‘If we don’t reform these pensions, the annual costs are just going to get bigger and bigger and bigger.
‘Existing public sector employees are still retiring at 60. Only new employees who have joined in the last few years will retire at 65, but by the time their retire the pension age for the rest of us will probably be 68.
‘People are living longer, and when you take into account employer contributions, which are funded by the taxpayer, you get a figure more like £18billion cost this year. It just isn’t sustainable.’
Mr Osborne told MPs yesterday that the Government had ‘inherited one of the largest budget deficits in the world and a larger structural deficit than we thought’.
Mr Darling said the OBR figures showed ‘borrowing will be less than I forecast, so the Government doesn’t have the excuse to raise VAT, which it is planning’.
He added that if the Government slashed public spending too aggressively it could send the UK into a double-dip recession.
 

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Pensions apartheid gap widens to £17300

By Paul Farrow

Published: 12:01AM BST 29 Aug 2009

According to PwC, private sector workers in defined contribution schemes
typically receive employer contributions of around 6pc of salary.

For civil servants, contributing only 1.5pc of their salary to their final
salary pension schemes, the implied employer contribution rate could be as
high as 35.5pc of salary, the accountant said.

PwC compared the financial fortunes of a public sector employee who remains in
civil service employment from age twenty-one to retirement at age sixty with
someone born in the same year, who spends his whole working life in the
private sector. The public sector worker would receive a pension of £28,900
compared to just £11,600 for the private sector worker.

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Pensions apartheid is simply unbelievable

Why whinge on endlessly about the unfairness of local government pensions?
The average annual pension in local government is of the order of �4,000 p.a.
Why not question the size of pensions lavished on financial journalists?
Stop picking on the poorest workers!
Sour grapes never made a good whine (sic)

Pension view ‘not radical enough’

The author of an influential report into the future of pensions now believes that his proposals were not radical enough.

Lord Turner told the BBC he would now argue that the age at which people received a state pension should be raised more quickly.

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