PUBLIC sector pensions need a complete overhaul to create a more affordable retirement system for government workers and to contain a trillion pound burden on the taxpayer, the Confederation for British Industry (CBI) argues in a new report published today.
Research from the business lobby showed that because these pensions include an unpredictable guarantee from employers, and staff contributions are out of kilter with payout levels, the financial black hole for unfunded public sector pensions is £10bn every year.
Despite recent reforms, many believe the government has not gone far enough in addressing the growing black hole in the public sector pensions pot and that its calculations underestimate the true cost.
The CBI argued that all public sector staff should be moved off guaranteed defined benefit schemes and retirement ages for existing and new public sector workers must be raised to match the state pension age.
John Cridland, CBI deputy director-general, said: “Public sector workers deserve a good retirement, but they and their employers should pay their own way. Public sector workers cannot lose the pensions pot they have accrued so far, but they will have to adapt in the future.”
The CBI called on the next government to set up an independent commission to set out the principles for reform of public sector pensions schemes. The CBI reckoned that a future model for public sector pensions could be a notional defined contribution (DC) scheme similar to that applied in Sweden rather than a move to a full DC approach that is applied in the private sector.
This would give predictability to the pension scheme and because there would be no expsure to the financial markets would go some way towards mitigating the risks associated with a DC scheme.