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used by John Hutton in his plans to reform public sector pensions used life expectancy rates that are now five years out of date, and that updating those figures could lead to a further £2 billion annual cost.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