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Gold-plated public sector pensions to rise twice as much as UK wages this year
Taxpayer funds 10.1 per cent increase next week, while wages fall in real terms
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Retired public sector workers will receive a gold-plated pension increase worth twice as much as the average pay rise this year.
The taxpayer is on the hook to fund next week’s 10.1 per cent inflation-proofing boost promised to the five million pensioners with a retirement income guaranteed by the state.
Next week’s rise is the biggest public sector pension increase in decades and the highest against pay growth for more than 30 years, analysis reveals.
And it comes on top of the 10.1 per cent increase to the state pension under the triple lock promise.
Yet despite inflation remaining in double-digits, workers are expected to see wages rise by an average of 5 per cent this year, according to the Office for Budget Responsibility.
Senior Conservatives and policy experts are now calling on the Government to act to ensure the generous pensions are affordable and fair for taxpayers.
Tory MP Jacob Rees-Mogg said that striking public sector workers should be offered pay rises in exchange for a smaller pension in retirement
Under public sector pension scheme rules, retirees are totally protected from rising prices and their pension is increased every April by the previous September’s rate of inflation.
Analysis for the Telegraph, by think tank the Institute of Economic Affairs, reveals the gap between public sector pension and wage growth had not been as stark since 1992.
Increasing all public sector pensions in line with inflation will cost the Treasury an extra £4bn this year, according to pension provider Canada Life.
Experts have warned that the level of spending is “unsustainable” and will widen the pension divide between public and private sector workers whose ‘defined contribution’ retirement funds have suffered on the stock market.
The analysis comes as thousands of public sector workers prepare to strike this month over pay. Junior doctors will walk out for four days next week, after the British Medical Association, which is seeking a 35pc pay rise, said that no “credible” pay offer had been made.
Meanwhile, the National Education Union has threatened to continue strike action as it lobbies for an inflation-busting pay rise.
Rees-Mogg said: “The benefit that public sector employees get over those in the private sector is overwhelmingly in pensions. But they don’t notice this benefit.
“It seems to me that a way to deal with the current strike action is to say wouldn’t you rather have cash now and move to a defined contribution system which will be less generous, and won’t guarantee inflation and will be in line with what the private sector is getting.”
Average weekly earnings in the public sector are now £618, whereas private sector workers are paid £583, according to the latest data from the Office for National Statistics.
Timothy Pike, of think tank the Pensions Policy Institute, also said public sector workers often misunderstood the value of their pensions.
He said: “Public sector pensions account for around 30pc of payroll, with 20pc on the employer and 10pc on the employee, varying from scheme to scheme and how much you earn. Meanwhile for private sector pensions, it is closer to around 20pc. Much more money goes into public sector pensions versus a typical pension.”
Meanwhile, Conor Holohan, of campaign group the Taxpayers Alliance, said: “The government must ensure that new public sector pensions are properly funded and not paid for by future generations.”
Angus Hanton, of the Intergenerational Foundation charity, added: “There is a pensions apartheid between the public and private sectors: unfunded pension promises for public sector workers are now in the trillions, whilst most young private sector workers only have meagre savings schemes.”
A Treasury spokesman said: “Rising prices are challenging for everyone, which is why halving inflation this year is a top priority for this government.
“Raising the public sector pension in line with CPI inflation is how we routinely revalue these types of pensions, even where earnings growth is higher, and reflects our compassionate approach to supporting pensioners in the current economic climate.”