Reform declares war on gold-plated public sector pensions

Telegraph

10 hours ago

A Reform UK government would radically overhaul gold-plated public sector pensions to stop them bankrupting Britain.
Richard Tice told The Telegraph he would put everything on the table and end the taxpayer 'rip off' if his party won the next general election.
Reform's deputy leader said the party would consider moving all public sector employees out of their 'Rolls-Royce' pension plans and into the defined contribution schemes almost all private sector workers have.
Britain currently hands £54bn a year to public sector retirees and another £35bn in pension contributions to current state workers, with both groups entitled to guaranteed, inflation-linked payments for life.
It comes after Reform pledged to axe defined benefit council pensions, which a recent Telegraph investigation revealed now costs some local authorities more than half of what they raise in council tax.
Britain currently has more than three million public sector pensioners, the vast majority of whom are retired NHS workers, teachers, civil servants and members of the armed forces.
Their schemes are all unfunded, meaning the contributions that come in from employers and employees are immediately used to pay current retirees, rather than being prudently invested to pay future pensions.
However, contributions have fallen short of the amounts paid out, with taxpayers funding a £49bn shortfall over the past decade alone.
Historically, they also haven't covered the cost of new pension rights built up by current workers. John Ralfe, a pensions consultant, calculated that the shortfall between contributions and future pensions was £208bn between 2013-23 – and it will be met by current and future taxpayers.
The system, which would be illegal in the private sector, has built up pension liabilities running into the trillions. Speaking to The Telegraph, Mr Tice said action was needed where successive governments had failed.
He said: 'We've got to have these conversations over the next few years and wake people up as to why we're in such a financial mess. Public sector pay and benefits have soared and yet productivity has collapsed, and it's a catastrophe.
'I want to be honest with the country. I want to say, 'if we don't sort this out, this will be a major factor in the country going bankrupt'. It's that serious.'
He also confirmed that Reform would consider moving every public sector worker into the type of defined contribution schemes that almost all private sector workers are members of.
He added: 'Everything has got to be on the table. The old rule was that public pay was less than the private sector because they had a more generous pension scheme, but successive governments have lifted pay in the public sector and therefore the old deal is no longer valid.
'Bluntly, there's been a failure to be honest about this. The public sector has pulled the wool over the eyes of the taxpayer. We're going to talk about it for the next four years: that taxpayers are being ripped off and it can't go on.'
Last week, Mr Tice said that Reform-controlled councils would stop offering the generous pension scheme to new employees and reduce pay rises for existing workers to balance out the cost of funding their retirements.
The Local Government Pension Scheme, the largest funded scheme in the UK, already spends £15bn a year on paying pensions across Britain.
A recent Telegraph investigation uncovered five local authorities that stuff more than half of their council tax into staff pension pots. Another 19 fork out more than a third, while 60 spend more than a fifth on funding the generous schemes.
It came after a series of Telegraph revelations about the cost of public sector pensions.
Last year, we calculated that Britain's current bill was £4.9 trillion, with each household on the hook for £173,000.
In October, we reported that another £20bn would be added to taxpayer-funded pension payouts after they rose another 1.7pc following September's inflation figure. Last month, we showed how the latest public sector pay rise would cost another £1bn in pension contributions alone.
We also revealed how taxpayers have been handed extra pension bills of £45bn for Royal Mail, £1.7bn for the Environment Agency and more than £300m for retired train drivers.
Switching public sector workers to defined contribution pensions could send the taxpayer's annual bill plummeting to around £4.5bn, saving almost £28bn a year, calculations have shown.
However, Barry McKay, of pensions firm Barnett Waddingham, warned it would be difficult to make the change.
He said: 'If you move to defined contribution, those contributions paid by existing workers would go into a pot somewhere to be invested and grow for the benefit of each worker, but in doing so there would be no money coming in to pay existing pensions.
'The Treasury would have to find a huge amount of money to pay the existing pensioners from somewhere else, because they don't have the contribution income any more. That leaves a massive hole in the Treasury accounts.'
He added: 'There is a problem that we're effectively stuck with defined benefit.'
Neil Record, a pensions expert and former Bank of England economist, said: 'The only practical solution to public sector pensions' increasingly intolerable burden on taxpayers is for the Government to offer a cash alternative, as an option, to all public sector employees.
'My guess is that in return for an approximately 30pc pay rise, most public sector employees would choose to give up accruing new pension rights as long as their existing rights were fully honoured.'