A saver would need to put away £10,500 a year for 46 years to get the £72,000-a-year retirement income that comes with the best government jobs. But salaries in the public sector tend to be much less generous compared with the private sector. So would it be fair to cut back on those generous public pension schemes? We hear two opposing views.
Yes
Tom McPhail, an independent pension expert
Yes of course they should, for three reasons. First, we can’t afford to keep paying it at the level we are. In fact, there are a lot of things we can’t afford, but, like drunken lottery winners, we keep spending money on. The UK’s budget deficit this year is about £130 billion; that’s on top of the £2.7 trillion we already owe. We’re paying out more than £100 billion a year just to service our debts.
The last time the UK government ran a budget surplus was in 2000-2001. Since then, we’ve been racking up more debt every year. Across a wide spectrum of government spending we need a rethink and a reset. Public sector pensions are a big ticket item, with unfunded debt of about £1.5 trillion.
The second issue is fairness. The civil service pension is a generous defined benefit scheme, giving a guaranteed, inflation-linked entitlement of 2.32 per cent of salary for every year of service. This means that someone earning £30,000 gets a guaranteed pension of nearly £700 a year after just one year’s employment. The cost of this is met principally through a staggeringly generous employer contribution of almost 29 per cent of salary (workers are also required to contribute at modest rates of between about 4.6 per cent and 7.35 per cent of salary).
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The UK’s public sector, its schools, hospitals, defence and its public administration is all paid for out of the tax revenue generated from private enterprise. Without private companies and their employees paying taxes to the government, we have no public sector. Yet those private sector employees no longer enjoy the same generous pension benefits that civil servants continue to accrue.
Just 10 per cent of private sector defined benefit schemes are still open to new members. The far more common form of pension in the private sector is defined contribution, where your retirement pot depends on how much you have paid in and investment performance. Employer contributions to these schemes average between 6.5 per cent and 9 per cent of salary — barely even a quarter of what civil servants are enjoying.
The Public Accounts Committee has identified a problem in the civil service with low morale leading to recruitment and retention problems. A significant factor here has been pay failing to keep pace with equivalent employment in the private sector. The obvious answer is to trim a little off the pension and redirect it into salary.
• How much should I have in my pension in my 20s, 30s, 40s, 50s and 60s?
No
Dave Penman, general secretary of the FDA trade union, which represents civil servants and public sector workers
Pensions are essentially a form of deferred pay, so you can’t look at pensions without considering the contribution it makes to the overall package for an employee.
Civil service pensions were last reformed just over a decade ago. The pension scheme changed to a career average rather than a final salary one, a process that had already been in place for new entrants. The pension age was aligned with the state pension age and employees had to increase the contributions they paid in.
These were all cost-cutting measures, which had the desired impact as costs have come down in each subsequent valuation of the scheme. The average civil service pension in 2023 was £9,784 a year.
The civil service has a pay crisis. Pay has been unreformed for 30 years and has faced more than a decade of zero or limited increases. Despite popular myths, pay in the rest of the public sector and, particularly, the private sector far outstrips the civil service when comparing like-for-like jobs. At the more senior end, private sector roles can pay twice or three times the salary.
• What is the UK state pension age and will it go up?
When it comes to specialist skills, the civil service struggles to attract talent, particularly from the private sector. In 37 per cent of recruitment campaigns across the senior civil service, there was only one appointable candidate, while 6 per cent of campaigns found none.
The churn rate is also over 10 per cent as civil servants leave for higher paid work.
The government talks a lot about reforming public services. That means recruiting and retaining the talent we need for the next decade, with investment in artificial intelligence and digital skills. That also means many of the lower-paid administrative jobs will disappear, as is already happening.
We’ve got big challenges in this country. We need serious solutions to serious problems, not rhetoric and dogma that do not reflect modern civil service pensions.
We all want improvements to public services. A civil service that can attract the right skills is essential to that. Cutting the pension scheme will only make that harder.
