Public service reform is being held back by a lack of a level playing field between the public and private sectors when it comes to pensions, warns the Confederation of British Industry (CBI).

The organisation has warned that businesses are reluctant to bid for public service contracts as it becomes necessary to mirror costly public sector pensions when their staff are transferred from the public sector to private.

Research by the CBI shows that firms are forced to pay between 25 and 50 per cent of salary to fund the pensions of ex-public sector staff, leaving many of them unable to compete against a public sector employer who typically contributes less, at around 15 per cent.

"The government policy whereby transferred staff retain their defined benefit pensions, and the optimistic funding assumptions behind this, have unfortunately created unfair competition between public and private sector providers," commented Kevin Beeston, chairman of the CBI Public Strategy Board.

"We are not looking for special treatment or a hand-out from the government, but we are asking for realism and a simple and fair means of levelling the playing field."

A solution proposed by the CBI would see staff transferred to within the private sector retain membership of their public sector scheme, meaning the private employer would pay the same as a public sector provider would. The private employer would then become a Public Sector Participating Employer (PSPE), according to the CBI.

At a media briefing, John Cridland, deputy director-general at the CBI, explained that model is based on the one used by the NHS.

He added: "Government finances are in a woeful state, public services are inevitably going to be squeezed, and there's an urgent need to deliver greater value for money. The private sector has a strong track record of improving public services, but too many firms are being shut out by the huge financial risk of trying to replicate public sector pensions.

- Pensions Age June 2009

Share Story: