Public sector pension reform ‘makes no financial difference’

By Ian Dunt

The bruising process of reforming public sector pensions will not save the taxpayer any money, a respected economic thinktank has argued.

The Institute for Fiscal Studies (IFS) found savings from higher pension ages will be offset by more generous payments to lower-income workers.

"The consequence of the long-drawn-out negotiations over the latest reform appears to be little or no long-term saving to the taxpayer or reduction in generosity, on average, of pensions for public service workers," Carl Emmerson, deputy director of the IFS, said.

The report, which will be welcomed by the government as proof it is offering public sector workers a fair deal in difficult economic times, highlights the change from retail price index to consumer price index inflation as the most substantial change for public sector workers.

Lower earners are expected to actually receive more generous payments due to the reform, after the government moved away from a final salary scheme to one based on career averages.

Unions reacted defensively to the report, with Brendan Barber of the TUC saying the IFS had only examined one of three major changes to public sector pensions.

"The current pay freeze and the one per cent cap on future increases will ensure public sector workers enjoy an equality of misery with employees in parts of the private sector," he said.

"Wages across the economy are running at less than half the rate of inflation.

Although it's true that during the recession, some private sector workers and their unions accepted pay restraint in return for job security, no similar choice exists for public sector workers."

The Institute estimated that it would take four years for public sector pay to return to where it was relative to private sector pay, because wages fell in the private sector in response to the recession much faster than in the public sector.