Households face an annual bill of £1,230 by 2017 to plug the “unsustainable” black hole in public sector pensions as Coalition reforms still leave the taxpayer paying for £4 in every £5 of the pensions, a thinktank has warned.
The Centre for Policy Studies (CPS) said that the cashflow shortfall in public sector pensions will be around £32 billion in 2017, meaning that each of Britain’s 26 million households will have to pay £1,230 to fill the gap.
This compares with an annual bill of £850 per household currently. As recently as 2006, each household was paying just £486 annually to plug the public sector pensions black hole, the CPS said.
The cashflow shortfall is the difference between pension contributions by the UK's public sector workers and the amount being paid out to people who have retired.
Michael Johnson, who wrote the CPS’s report ‘The approaching cashflow crunch’, said that the rising shortfall is “unsustainable”. He said that over the next few years “furiously ringing alarm bells” about the cash gap will become “impossible to ignore”.
The rising cost of paying for public sector pensions comes despite Coalition efforts to deal with the rising cost.
The Government has announced plans to cut the total liability of public sector pensions by 40 per cent in 50 years’ time. Contributions from public sector workers will also increase.
However Mr Johnson said that this will not address the nearer-term cashflow problems. He called on the Government to rethink its assumptions about how to tackle the problem.
He said: “The thing that really matters is year to year cash flow. Because that is real, it is tangible, it has to be financed. Over the next few years and we are not talking decades we are talking a few years that hard hitting cashflow reality is going to become absolutely catastrophic.”
Mr Johnson said that successive Governments have failed to tackle spiraling pensions.
“Public sector pensions is something that no politician wants to touch. It has been booted into the long grass for half a century and the problem has just got worse.
“Even today what I am trying to say is that the Government of the day, and I don’t care what colour it is, is not facing the reality,” said Mr Johnson.
Tim Knox, a CPS director, said: “We must recognise that the Coalition reforms to public sector pensions do not go nearly far enough, are unaffordable, and can not last.
“Why should future generations pick up the bill for the pensions of public sector workers, people who on average are likely to be far better off in their retirement than their wealth-creating private sector peers?”
A Treasury spokesman said: “The Government’s reforms will nearly halve the cost of public service pensions, saving £420 billion, to deliver long-term sustainability. Fairness is also at the centre of our reforms, for instance increased member contributions will save around £3 billion a year by 2015.
“At the same time we have been able to protect the accrued rights of those who have dedicated their careers to public service.”