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Johnson predicts public sector pension bill to jump by £9bn a year

by Brian Cantwell on Feb 04, 2013 at 12:15

Johnson predicts public sector pension bill to jump by £9bn a year

Thinktank the Centre for Policy Studies has predicted the cost of public sector pensions could rise by more than £9 billion a year due to the government’s reforms of the state pension.

Michael Johnson (pictured), research fellow at the Centre for Policy Studies said the bill would rise due to a ‘toxic tangle’ between the government’s reform of public sector pensions and the introduction of a flat-rate state pension.

He has outlined a £9.4 billion annual rise in costs, taking the total public sector pension bill to £42 billion a year.

Johnson said £3.4 billion of those costs related to the loss of public sector employees’ national insurance rebates following the end of contracting out. A further £4 billion relates to the government’s move to allow contracted-out employees to build up continue to build up state pension entitlement to the £144-a-week level under the flat-rate state pension plans.

He added that modelling used by John Hutton in his plans to reform public sector pensions used life expectancy rates that are now five years out of date, and that updating those figures could lead to a further £2 billion annual cost.

Johnson said: ‘The need for bolder reform of public sector pensions is far greater than that proposed in the Public Service Pensions Bill. And the coalition must act now to untangle the expensive consequences of the interaction between its various pension reform proposals.’

The Department for Work and Pensions said it 'did not recognise' the figures as the CPS report presented them. 'The new single tier state pension will be more sustainable and cost the taxpayer no more than the current system,' said a spokesman. 'To make the state pension simpler and easier to understand, contracting out must end, meaning both employees and employers across the public and private sectors will pay national insurance at the standard rate.'

8 comments so far. Why not have your say?

Charles Rickards

Feb 04, 2013 at 13:37

Time for a level playing field! The failings of government and regulation have led to DB pensions schemes becoming too onerous for most employers, due to the responsibilities imposed and restrictions applied.

As unpalatable as it may seem, it is probably time to move all public sector pensions scheme in line with those available to the average private sector employee.

At least this way the level of liability could be controlled.

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Stuart Rathbone

Feb 04, 2013 at 13:41

No problem, just up the member’s contribution by the reduction in the total NIC rebate. If they don’t like it they can take their money and buy a pension in the open market like the rest of us Sh1t happens due to your life choices get over it.

Sadly we the tax payers (and before any one chimes in the public sector do not pay taxes, all their tax it is a reduction or their cost burden to the rest of us) will be picking up the tab as no one we have elected has the backbone to tell it like it is

it is my opinion that we cannot afford what we have already promised and until the glorious day that the S.H.T.F. and the cheques bounce the politicos/bureaucratic placeman will get in, get out with their swag avoid the thorny issues and hope it occurs on the next incumbents watch.

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Derek Guyers

Feb 04, 2013 at 14:44

“…both employees and employers across the public and private sectors will pay national insurance at the standard rate.”

Fine. The current standard rates are 12% and 13.8%. That includes the cost of SERPS/S2P. SERPS/S2P is stopping so the current rates are too high. NI contributions rates were increased in 1978 to pay for SERPS, now that SERPS is going, they can be reduced.

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Usually found sitting on the fence

Feb 04, 2013 at 15:11

@ Charles - It is a level playing field, you could have chosen to work in the public sector.

@ Stuart - Seems a short sighted view, of course the public sector employees pay tax, the source of the income is not relevant.

Are there too many public servants? probably. Are some public servants paid way too much? definitely. Could the public's money be better utilised? of course. I don't work in the public sector, with hindsight it may well have been a more beneficial and rewarding life choice. The fact that bad stuff happened to the private sector pensions and we were all too cowardly to stand up to it, should not mean that we have to insist on bringing everyone else down to the same level. If anything we should be supporting the public servants in their attempts to keep their pensions and using them as the example to improve our own pension prospects...

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Stuart Rathbone

Feb 04, 2013 at 15:57

@ UFSOTF

Source of income is relevant if it is coming from taxes raised on all. The P.S. tax on income is a bit circular I agree but my basic point is that the tax they pay is a return of money they have received from the state out of taxes paid into state by none P.S. tax payers (and PS tax payers - the circular bit). The net effect of which is a lower cost the all tax payers for the P.S.

All other tax paid by P.S. workers is not relevant, unless that is the reason for the tax payment arising is due to surplus capital from P.S. income (and further down the rabbit hole we go).

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Charles Rickards

Feb 04, 2013 at 16:22

@ UFSOTF - You are right I could have, but we can't all work in the public sector to get the good pensions can we.

It would be an interesting analysis to see which area has the better total benefit package. maybe then we could judge how level the playing field is.

I also agree that we need the public sector and that it would be preferable to bring the private sector pension benefits up to the level of the public sector benefits, however, unless Joe public is prepared to pay, it won't happen.

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Usually found sitting on the fence

Feb 04, 2013 at 17:08

@ Stuart - Both arguments are equally valid, depending on the point you are trying to make, I guess. I do not disagree with you, entirely, but by definition it is a tax. It is like saying that the tax raised on monies spent by tourists is more valuable to HMRC than the tax raised from private sector workers spending and that is equally more valuable than the tax raised from the public sector. At the end of the day, they all put the same money back into HMRC. Beneficial to the economy, yes, and I guess that's your point.

@ Charles - We can't all work in the public sector, but it's certainly an option to try when making life choices... The area with the best total benefit package, I imagine, to be boardrooms and bankers... and I know, stating the bleeding obvious!!

The last point is that we still live in a a very biased society, but the politics of envy is what keeps it all in check. And although I would like a director's pay, I know I do not want the hassle!!

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Richard Hardy

Feb 05, 2013 at 09:55

I agree with the statements above however what appears to be consistent within the pensions landscape is the lack of thought given to policy changes and the implications, the butterfly effect.

Government tinkering has lead to most so-called misselling scandals, final salary pension transfers for example.

Successive Governments have farted around with the welfare system and the pension system (public & private) purely for political gain.

The ever rising cost of public sector pensions needs to be addressed. Any increase in the rate of inflation may reduce Government debt in one area of the economy but will lead to a rise in future liabilities in another.

As has been seen with the private sector, final salary schemes are like socialism, unsustainable, you will eventually run out other peoples money.

If I had the choice I would rather have the money than a pension. To place my money in such a restricted savings vehicle for such a long period of time for it then to become a political punchbag does not sit comfortably with me.

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