The pandora's box of public sector pensions


The British government is preparing to open the Pandora's box of public sector pensions by forcing five million teachers, police, firefighters and town hall staff to contribute up to two thirds more to fund their final-salary pensions.

According to a story in The Times today, public sector staff will also lose generous benefits for early retirement due to ill health which are intended to stop staff retiring early if they are still fit to work in some capacity

The changes, which vary between departments and will be introduced between 2008 and 2013, are based on government plans to raise the public sector retirement age from 60 to 65. They are aimed at reducing the rising costs of pensions as workers live longer and at ensuring that people do not abuse sickness benefits.

According to recent estimates by actuarial consultants Watson Wyatt, the government has unfunded public sector pension liabilities of approximately £580 billion - almost 50 per cent larger than the most recent official estimate of £380 billion – and will either have to hike taxes or cut public spending to pay for it.

But the political ramifications of failing to address the issue are enormous. If deficits forced councils to increase local taxes so as to extract more money from local residents - most of whom don't have a final salary pension - in order to help employees of local government who do, the effect on Labour's political support would be devastating.

Predictably, though, public sector unions are up in arms about the proposals. But with the government caught between a rock and a hard place, this could become the biggest industrial relations battleground the UK has seen for some time.

The Times | Five million workers face Treasury blitz on pensions