Moving all new public sector workers to less generous pension schemes could eventually save the Treasury more than \u00a337 billion a year, analysts suggest.<\/p>\n
Policy Exchange, a conservative think tank, is urging the government to move teachers, nurses and doctors away from defined benefit (DB) schemes, which offer a guaranteed income for life. Instead they should be offered defined contribution (DC) schemes, where the value of their pension pot is determined by how much was paid in and how well investments performed \u2014 the type of scheme used in most of the private sector.<\/p>\n
Within 20 years this would be saving the Treasury more than \u00a36 billion a year, Policy Exchange said. Based on 2025 prices and assuming employer contributions of 10 per cent of a worker\u2019s salary, the saving would be \u00a320 billion a year in 30 years and more than \u00a337 billion a year in 50 years. <\/p>\n
Official figures show that funding the pensions of retired public sector workersit will cost taxpayers \u00a357 billion this year<\/a>. These schemes constitute a \u00a31.4 trillion unfunded liability on the public sector balance sheet, according to the Office for Budget Responsibility (OBR).<\/p>\n DB schemes guarantee a fixed pension amount after retirement, based on average salary and years of service. In DC schemes employees and employers contribute to an investment pot that will provide a retirement income. <\/p>\n The Conservative MP and former chancellor Jeremy Hunt has called for DB schemes to be closed for new public sector recruits<\/a> from November. Richard Tice, the deputy leader of Reform UK, has also called for new public sector workers to be switched to DC schemes. <\/p>\n Policy Exchange proposes that all new public sector employees, except those in the armed forces, should be moved to DC schemes with standardised employer contributions of 10 per cent of salary and employee contributions of 5 per cent. This would also apply to workers rejoining the public sector. The minimum employer contribution under auto-enrolment is 3 per cent while workers pay in 5 per cent.<\/p>\n