Government saves £126 billion on public sector pensions

July 16, 2012 3:48 PM

The Government has saved over £4,500 for every family in the UK thanks to its decision in 2010 to link public sector pensions to an alternative measure of inflation.

A recent report from the Office for Budget Responsibility shows the switch from the Retail Price Index (RPI) to the Consumer Price Index (CPI) has saved taxpayers £126 billion. The CPI measure is a narrower measure of how fast average prices are rising, the biggest difference being that it does not include mortgage interest costs. There is no good reason why pensioners would need to be protected against rising mortgage costs because they should have already paid off their mortgage by the time they retire. Combined with the effects of the Government’s other reforms the change has cut the net cost of public sector pensions by 40 per cent.

However, there is still a startling difference between the size of private sector and public sector pension pots, which has been described as ‘pensions apartheid’. Figures from the Office for National Statistics show that 82 per cent of public sector benefit from an occupational pension scheme compared to just 38 per cent in the private sector. The burden on taxpayers isn’t just limited to funding pensions for a much greater proportion of public sector staff. Taxpayer-funded pensions are much more generous than those people can afford for themselves, too. The average value of retirement pots of state employees is £90,100, more than double the private sector average of £40,000.

These figures show the necessity of public sector pension reforms at a time when taxpayers are having to tighten their belts. With an aging population putting increasing pressure on public services, it is only fair to ask those in the public sector to face the tough decisions about working longer and contributing more to their pensions that people in the private sector are already doing.The Government has saved over £4,500 for every family in the UK thanks to its decision in 2010 to link public sector pensions to an alternative measure of inflation.

A recent report from the Office for Budget Responsibility shows the switch from the Retail Price Index (RPI) to the Consumer Price Index (CPI) has saved taxpayers £126 billion. The CPI measure is a narrower measure of how fast average prices are rising, the biggest difference being that it does not include mortgage interest costs. There is no good reason why pensioners would need to be protected against rising mortgage costs because they should have already paid off their mortgage by the time they retire. Combined with the effects of the Government’s other reforms the change has cut the net cost of public sector pensions by 40 per cent.

However, there is still a startling difference between the size of private sector and public sector pension pots, which has been described as ‘pensions apartheid’. Figures from the Office for National Statistics show that 82 per cent of public sector benefit from an occupational pension scheme compared to just 38 per cent in the private sector. The burden on taxpayers isn’t just limited to funding pensions for a much greater proportion of public sector staff. Taxpayer-funded pensions are much more generous than those people can afford for themselves, too. The average value of retirement pots of state employees is £90,100, more than double the private sector average of £40,000.

These figures show the necessity of public sector pension reforms at a time when taxpayers are having to tighten their belts. With an aging population putting increasing pressure on public services, it is only fair to ask those in the public sector to face the tough decisions about working longer and contributing more to their pensions that people in the private sector are already doing.

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