A cost review of all public service pension schemes, which begins today, is predicted to increase the cost across all schemes by around £3bn a year, according to analysis by KPMG.

It will be a rare opportunity to see the full picture across all schemes as public service pension schemes only start their actuarial evaluation on the same day once every 12 years.

The full findings will not be available for two years, however, KPMG predicts the review will find a cost increase of around £3bn, bringing the schemes under further public scrutiny.

Commenting on the review KPMG partner, public sector pensions Steve Simkins explained that the increase will only hit public sector employers; the contributions and benefits members receive are not expected to change.

“This presses home the need to ensure that these schemes are offering excellent value to members. Since the new public service pension schemes were introduced, private sector pensions have seen a step change towards maximum flexibility and choice, but over five million public servants are locked into more rigid arrangements which might not fit their individual needs,” he stated.

In addition, Simkins highlighted that the new flat-rate state pension, which will see national insurance costs increase for employers, means that there will soon be very few active DB members outside of the public sector.

“The UK pension system will move to one which could be billed as 'flexible defined contribution versus inflexible public service' and we expect the pressure will increase for this gulf to be reduced over the coming years,” he said.

“Whilst cost will always be a key priority, I hope this review won’t just focus on cost but will also look at design and how combining the two could lead to a better outcome for everyone. Put simply, a more modern, flexible system could offer more value at less cost.”

Share Story: