Interactive Investor

Public sector pensions triple the size of private sector counterparts

28th August 2018 13:27

Stephen Little from interactive investor

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Public sector workers will retire on pensions that are three times larger than those working in the private sector, research from campaign group the Taxpayers’ Alliance has found.

According to the organisation, a public sector worker earning an average wage of £28,600 a year will retire with an average annual pension of £17,563.

By comparison, a private sector worker earning the same amount will retire on just £6,412 – a difference of over £11,151.

The report compares occupational pensions that are available to new entrants in the private and public sectors.

A private sector worker would have to save 30% of their salary - £8,606 a year - to retire with a pension as large as a public sector worker’s pension.

The market value of a public sector employee’s pension would be worth £1.9 million more than a private sector worker’s pension fund on retirement.

The annual cost of public sector pensions was £38 billion in 2017, compared to £37 billion total spending on defence over the same period.

As public sector pensions are unfunded, they are paid out of general tax revenues.

Defined benefit (DB) schemes are rarely available in the private sector, as most firms now offer defined contribution (DC) pensions.

The Taxpayer’s Alliance is calling for all new public sector employees to join on the basis of a DC pension that is fully funded to help narrow the gap.

 “Stop kicking the can down the road”

As a result of the findings, the campaign group is calling for urgent reform of public sector pensions. John O'Connell, chief executive of the Taxpayers' Alliance, says: "Workers in the private sector are paying for their public sector counterparts to enjoy a retirement they can only dream of, and that disparity has been brutally compounded over the years by politicians continuously launching raids on private pensions.”

Mr O’Connell adds that pension promises made to public sector workers are unfunded and will continue to be paid out of general taxation. He believes this is unsustainable, as people are living a lot longer than was anticipated when these schemes were created.

"To stop kicking the can down the road, reforms must ensure that new public sector pensions are properly funded and not paid for by the taxpayers of the future, namely our children and grandchildren," he adds.

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This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

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