PensionsMay 22 2013

Dramatic drop for public sector pensions – report

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The 84-page report by the Pensions Policy Institute focused on the effect of government reforms to the NHS, teaching, local government and civil service pension schemes and it found that thousands of members could suffer from a significant cut in retirement income.

It showed the typical pension benefit value across all schemes would decrease from 23 per cent of a member’s salary to 15 per cent.

It estimated that government expenditure on unfunded public service schemes will rise in the short term, hitting 1.8 per cent of gross the domestic product in 2016 before dropping to 0.8 per cent of GDP by 2065. This is equivalent to a 25 per cent fall and is due to government intervention.

Chris Curry, research director for the PPI, said: “The impact of the government’s reforms on members of the public service pension schemes will vary for scheme members with different characteristics.

“High-flyers with fast salary progression may see a larger reduction in the value of their public service pension under the government’s proposed reforms than scheme members with more modest salary progression.”

Niki Cleal, director of the PPI, said pension schemes in the public sector would remain more valuable than those in the private sector, where defined contribution arrangements now prevail.

David Finan, managing director of Cumbria-based Jardine Finan Wealth Managers, said: “The reforms are a step in the right direction, I believe, but public sector pensions will still be very generous. But if you’re a public servant, I imagine that you’ll still feel very hard done by and refuse to accept the generosity of what you’re getting.”


* The value of pension benefits in the NHS and teachers’ schemes will be typically reduced from 23 per cent of a member’s salary to 14 per cent.

* Local government pension schemes will see benefits fall from 22 per cent of a member’s salary to 14 per cent.

* Benefits for civil service scheme members will drop from 27 per cent to 17 per cent.

* More than 90 per cent of private sector workers have defined benefit pensions and employers typically contribute around 7 per cent of a member’s salary.