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\t\tEmployers make a contribution of 25-30 per cent for public sector schemes\t<\/p>\n\t\t\tMonday 26 January 2026 10:09 pm
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\t\tEmployers make a contribution of 25-30 per cent for public sector schemes\t<\/p>\n
Moving new public sector employees onto defined contribution<\/a> (DC) pension schemes could save taxpayers \u00a337bn a year in the long run, a new report has found.\u00a0<\/p>\n The report, produced by Policy Exchange, argues that moving public sector workers onto a DC scheme would also send an \u201cimportant signal\u201d to the bond market<\/a> that the government was serious about tackling public debt.\u00a0<\/p>\n Most public sector pensions operate as defined benefit (DB) schemes, whereas private sector schemes tend to be DC. The former provide savers a guaranteed income in retirement, with employers often contributing more to ensure that this is the case.\u00a0<\/p>\n DC schemes, in contrast, are funded primarily by the employee, as the participant defers a portion of their gross salary into a fund. Employers may then match the contribution.\u00a0\u00a0<\/p>\n Richard Tice, deputy lead of Reform, welcomed the report. \u201cThe current situation with public sector pensions is unsustainable and needs reform. We are very focused on this issue,\u201d he said.\u00a0<\/p>\n \t\tHuge employer contributions<\/p>\n Policy Exchange<\/a> noted that employers make a contribution of 25-30 per cent for public sector schemes, compared to an average private sector contribution of six per cent.<\/p>\n Additionally, in most public sector pension schemes, the contributions of existing public sector workers are not invested, but rather returned to the Treasury.\u00a0<\/p>\n This means the pensions of current retirees are generally paid for out of current spending, which Policy Exchange said creates \u201cmassive spending liabilities\u201d for taxpayers \u2013 currently valued at \u00a31.4bn.\u00a0<\/p>\n It argued that the government should gradually move public sector workers onto a DC scheme with a standardised employer contribution of 10 per cent, with employees contributing five per cent.\u00a0<\/p>\n \u201cSuch a scheme would still compare favourably with the majority of private sector schemes and would ensure public sector employees continued to receive a good income in retirement, with the total proportion of salary being invested into an employee\u2019s pension being above the 12 per cent recommended by Pensions UK,\u201d the think tank said.\u00a0<\/p>\n \t\t\t\t\tRead more<\/p>\n