Following claims by the National Audit Office (NAO) that public sector pensions are sustainable, the Confederation for British Industry (CBI) is calling for an overhaul of the system to contain what it describes as a "£1trn burden" on the taxpayer.

The latest research carried out by the industry body estimates that public sector schemes, which feature an unpredictable guarantee, create a £10bn 'black hole' every year in the nation's finances.

Consequently, the CBI has argued that, taken as a whole, the current approach to public sector retirement is not sustainable. On average, public sector benefits are worth 26 per cent of salary per year, with longevity and a growing state workforce compounding the situation.

The public sector must pay its way for its pensions, says the CBI, and pensions should be fully linked to the contributions made by staff and their employer, with no hidden taxpayer subsidy. Pension rights and pots which have already been accrued must be protected so staff do not lose what they have already accumulated.

The CBI also called for the end of defined benefit schemes for the public sector staff, although schemes in a funded position may wish to go down a different route.

Retirement ages for existing and new public sector workers must also be raised to create a level playing field with the state pension age.

"This is a difficult and emotive area, and not one that should be rushed," commented John Cridland, CBI deputy director-general. "Public sector workers deserve a good retirement, but they and their employers should pay their own way. The pensions black hold is over one trillion pounds and rising, and taxpayers cannot be left to make up the difference.

"Guaranteed final salary pensions have entered the history books in the private sector, but the state has not squared up to the issue for its own workers. Countries like Sweden and Holland reformed their systems some 15 years age."

Cridland said a new Government must acknowledge the problem, establish the true costs and let the public decide what they are prepared to pay for.

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