‘Soaring’ public sector pensions widening intergenerational fairness

The number of public sector retirees receiving pensions over £100,000 a year has jumped by 320 per cent over seven years, increasing intergenerational unfairness, a leading charity has warned.

A new report by the Intergenerational Foundation (IF) published yesterday, 13 May, found that retirees in the ‘big three’, the NHS, civil service and teachers, receiving over £100,000 annually increased from 117 in 2010/11 to 375 in 2017/18.

Furthermore, the number receiving over £50,000 a year has grown by 239 per cent over the same period, from 10,180 on 2010/11 to 24,349 in 2017/18, at an estimated cost of £1.2bn to the nation.

As a result of the findings, IF has said that the system is “out of control” and recommended six recommendations including disqualifying those earning over £50,000 a year from receiving the state pension and high contribution rates that “more accurately reflects the costs of the benefits to which they will become entitled”.

IF co-founder, Angus Hanton, said: “This is an increasingly acute intergenerational fairness concern, These pensions are based on flawed assumptions made years ago about life expectancy, interest rates, contribution rates and levels of pay which successive governments have wilfully ignored.

“Younger workers will not receive such generous pensions, yet they are expected to keep paying for these pensions while also having to contribute far more for their own old age. If ever there was an example of passing the intergenerational buck, this is it.”

According to the IF, the total unfunded liability for the public sector is £1.7trn, which in turn has created a large burden on younger taxpayers.

Of this, £600bn is made up from the NHS, £400bn for teachers and £250bn for the civil service.

The IF is also calling for a more joined up approach in measuring the cost of the pensions, to increase the state pension ages more quickly, applying national insurance above a certain threshold to unearned income and changing the tax-free lump sum rules for pensions.

The report, which gathered the data using Freedom of Information requests from the government, found that over 115,000 government pensions are above the average annual wage of £28,600 a year.

“We have to grasp the nettle of today’s over generous pensions, those demanding no change to the current situation are putting the interests of their cohort before the interests of their children and grandchildren,” Hanton added.

Both NHS and teachers' pensions have been in the spotlight in recent months, as the government grapples with the affordability of the schemes.

Last month, the government has said it will “fully-fund” the estimated £830m increase in pensions contributions of state schools for 2019/20,as well as a further £80m for further education colleges and public-funded training organisations.

It has also come under increasing pressure regarding the tax arrangements of the NHS pension scheme, with the Chancellor Philip Hammond believed to be in talks about a more flexible approach.

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