Gov’t reforms will cut pensions spending by 40%, OBR
Office for Budget Responsibility figures show that pensions costs will fall from 1.5 per cent of GDP to 0.9 per cent.
The package of reforms to the way state pensions are uprated and the calculations on which public sector pension benefits and contributions are determined will cut the cost of retirement provision by around 40 per cent over the next 50 years, according to official figures.
Data published by the Office for Budget Respionsibility in its latest fiscal sustainability report show that reforms introduced by the coalition government will decrease government pension spending from a forecast 1.5 per cent of gross domestic product in 2061-2062 to around 0.9 per cent of GDP.
According to Danny Alexander MP, chief secretary to the Treasury, the shift in spending will amount to around £430bn in current GDP terms over the period.
According to the research, the current level of spending on pensions is around 2 per cent a year but the OBR said before any reforms are considered this was projected to fall to around 1.5 per cent.
The additional spending falls will come primarily from the move to indexation based on consumer price index inflation rather than retail price index, which will reduce costs by 0.4 per cent of GDP a year.
Reform of contribution levels and the introduction of new scheme designs will account for a further drop of 0.1 of GDP each. The OBR said that further savings to pension spending may emerge from these changes.
Danny Alexander MP, chief secretary to the Treasury, said: “The government’s reforms will bring total spending on public service pensions in line with the long run average over the last 40 years.
“This will save 40 per cent of net expenditure by 2061-2062, so freeing up funding for other services. The Treasury estimates that this represents around £430bn of savings in current GDP terms over the next 50 years.
“This shows that the deals confirmed last week are good for taxpayers, as well as public sector workers, who will continue to receive pensions that are among the very best available, providing a guaranteed pension level for all members.”