Taxpayers left to foot the bill for ballooning public sector pensions
THE ballooning bill for public sector pensions has been revealed – with taxpayers forced to contribute substantially.
A report has highlighted the disparity between public and private sector pots, showing teachers are in line for one of the most generous pay-outs.
And the taxpayer contributes a staggering 16 per cent to their retirement funds every month.
This is more than double the 7.4 per cent a teacher on the bottom of the pay scale (at £28,310) pays in and a third more than senior staff earning £81,662 and above contribute.
A 35-year-old teacher earning an average salary of £40,000 could expect an annual pension of around £46,000 if they retire at 68. Members of the armed forces, police, firefighters, NHS workers and MPs all feature on the list of the most generous pensions, compiled by the Pension Times website.
Critics warned that the rising bill will have to be met by future taxpayers in order to honour the substantial deals still on offer to public sector workers.
Nearly all private sector firms abandoned salary-linked pension deals when they became too expensive. But they are offered by all public sector employers.
John Ralfe, an independent pension consultant, said: “The real annual cost to taxpayers of public sector pension promises is 50 per cent of salary, much higher than the official cost, and much, much higher than private sector pensions.
“Most of this cost is not being paid by current taxpayers, but is being passed on to be paid by our children and grandchildren, which is grotesquely unfair. No one in government is prepared to sort this out, partly because of self-interest by civil servants, MPs and ministers who, of course, get these pensions.”
Michael Throckmorton, of Merchant Cash Advance loans, said: “Traditionally, public sector pay deals were generally lower than other sectors, but the generous pension package made up for this.Things are different now.
“The generosity of different public service pension schemes does vary considerably, but they can all expect to generate more pension than a newly-enrolled private sector worker would get.
“The main reason behind this higher pension is the substantial employer contribution in the
public sector, which can exceed 20 per cent of the salary.The very few people who decide to opt out of these are in effect throwing away a significant part of their salary.”
Mr Ralfe’s research in October found the total cost of meeting gold-plated public sector pensions eclipses the UK’s national debt.
Generous guaranteed retirement packages for state workers have left the country with a £2.4trillion bill, it was said. The national debt was then £2.2trillion.
Despite benefits for the armed forces being reduced in recent years, members of the Armed Forces Pension Scheme enjoy one of the most generous retirement funds. The Ministry of Defence pays the equivalent of 1/47th of annual earnings and this is increased every year in line with inflation. The deals are bankrolled by the taxpayer and guaranteed to pay a retirement income based on a final or career average salary.
The real annual cost to the taxpayer of providing the pensions has doubled in the past five years to hit £95billion, the analysis found. This is more than twice the £45billion spent on the Royal Navy, Army and Royal Air Force – and close to the £100billion education budget. An army sergeant earning £36,000 and expecting to retire at 60 as a major after completing 32 years of service can expect an income of £41,000 plus a large tax-free sum.
MPs have seen their final salary pensions cut back, with all new MPs since 2015 moving into a cheaper “career average” scheme. But they can rely on a retirement income way above the majority of private sector staff. Those on £81,932 a year will bank around £34,000 if they stay in Parliament for 25 years and retire at 65.
All NHS employees enjoy a scheme which entitles them to 1/54th of each year’s earnings. They pay between five per cent and 14.5 per cent of their salary. A typical nurse earns an average £35,000 and if they retire aged 65 with 25 years of service, they will have a £14,500 private pension to add to their £9,350 annual state pension. Doctors on higher pensions are taking early retirement in record numbers before they are hit with tax bills because they have been able to put away huge pension pots, it was said.
Neil Record, of the Institute of Economic Affairs think-tank, said: “There is this cotton wool wrapped around public sector employees. No politician ever faces the harsh realities that a finance director of a company does.”
Taxpayers have to foot the bill for pension benefits that are worth more than 50 per cent of a public sector salary. Those in the private sector auto-enrolment schemes can only rely on their employer paying three per cent of their pay into the pension.
A public sector employee earning £30,000 receives total pay and benefits of £45,000. But someone with the same salary in the private sector will get just £30,900.
FEW would begrudge NHS workers, the Armed Forces and teachers a good pension, and our public sector workers are vital. But a new report highlights an alarming and unacknowledged gap between public and private pensions.
Public sector pensions are often up to 50 per cent of final salary, far higher than private sector pensions, and the vast cost of meeting this bill comes from taxpayers, including from future generations.
Guaranteed retirement packages for state workers add up to an eyewatering £2.4trillion. But private sector companies have largely abandoned salary-linked pension deals as being too expensive.
Once, public sector pay was typically lower than the private sector but with better pensions as a perk.This is no longer true.
So let’s now consider our retail, hospitality and construction workers and others in the private sector who face zero-hours contracts, job insecurity and low levels of pension provision. They deserve greater parity.