Public sector pensions to cost £41bn?

Couple looking at paperworkWithin the next 10 years, each household in the UK could be required to cough up £1,600 a year to fund public sector pensions because the Government has underestimated the expense of its reforms.

That's the worrying conclusion of a report from leading think-tank the Centre for Policy Studies, which claims to have discovered a new £9 billion-a-year "pensions black hole".

The study, which indicates that the bill will hit taxpayers within as little as seven years, states that government estimates of a burden of about £1,230 per household are likely to be a few hundred pounds short of the mark.

According to the Daily Mail, this will result in a total public sector pension bill of some £41 billion a year.

The report blames the unintended consequences of the introduction of the new flat-rate £144 per week pension coming at the same time as reforms to reduce the costs of public sector pensions for the huge projected costs.

That's despite the public sector pension reforms being designed to stop the cost of public sector pensions soaring to unsustainable levels by bringing them into line with private sector deals.

The Centre for Policy Studies' Michael Johnson argues that the reforms will not do enough to get the cost of public sector pensions under control, and has called for a reworking of the Public Sector Pensions Bill.

"If the Bill were to become law as it stands, we would be embarked upon an almost unparalleled perpetration of inter-generational injustice," he told the Daily Telegraph newspaper.

"The young will have to pay for the older generation's pensions at the expense of their own provision.

"Furthermore, even after the latest reforms, public sector workers will continue to enjoy certainty of income in retirement until the day they die, predominantly paid for by the 80% of the workforce in the private sector, very few of whom enjoy such certainty."

The government claims that the Centre for Policy Studies' fears are unfounded, though.

"The new single tier state pension will be more sustainable and cost the taxpayer no more than the current system," the Department of Work and Pensions said.

Public sector workers, many of whom have protested at plans that will result in them having to work longer and manage on lower pensions, are also unlikely to welcome the study.

Seven retirement nightmares

Seven retirement nightmares