Pensions burden could cause debt

16/06/2010

Pensions burden could cause debt

British households will soon face an annual bill of £4000 to fund the gold plated pensions of public servants.

That's the conclusion of a report by the new Office for Budget Responsibility (OBR), that was set up by Chancellor George Osborne to keep an independent eye on the government's finances.

According to the OBR, within five years the tax-payer will be forking out almost £10 billion pounds a year to fund the pension schemes, up from £4 billion this year.

Speaking in London Deputy Prime Minister Nick Clegg said that the government "could not ignore a spending area which will more than double within five years".

"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."

Costs for the pensions will rise, on average, by around 20 percent each year until the cost hits the £10 billion figure by 2015. Divided by the country's 26 million households the cost of the debt works out at around £4000 each.

The government has already hinted that changes will be have to be made to public sector pensions in the upcoming emergency budget, however not everyone is convinced about the legitimacy of taking such swift action.

Speaking on BBC Radio 4 Unison General Secretary Dave Prentis said that a longer term approach was needed "Over a 20-year period, costs are not going up. We have taken measures already to control public service pension schemes. In the health service people are being asked to go into a new scheme, in local government we've already implemented one, and the civil service have done the same. These figures are put there to build up an aura for cuts, and it's not the true story."

Despite public sector pensions originally being a perk that made up for lower pay, in recent years public sector salaries have often overtaken those in the private sector.

A review of public sector pay is also on the cards as the recent publication of the high salaries of some civil servants caused consternation amongst many tax payers struggling with debt problems.

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