Gold-plated pensions for 80pc of public sector – while private workers suffer

Gold Plates Pensions

The vast majority of public sector workers still pay into taxpayer-funded “gold-plated” pensions which have nearly vanished in the private sector, figures show.

Some 81.9pc of workers employed by the state enjoy lucrative “defined benefit” schemes that pay a proportion of their salary in retirement – often inflation-linked for the rest of their life.

By contrast, just 7pc of private sector employees receive this benefit, Telegraph analysis of Office of National Statistics data shows.

This is despite the public sector pensions bill now standing at more than £2.6 trillion – larger than the size of the UK economy.

Yet defined benefit schemes are close to extinction in the private sector as they have become too expensive for employers to maintain.

Instead, most private sector workers and employers pay pension contributions each month into “defined contribution” schemes, with the size of retirement pots dependent on how well investments perform.

The proportion of private sector employees paying into a defined benefit scheme fell from 8.8pc in 2016 to 7pc in 2021, the latest year for which data is available. In the public sector, the figure has stayed roughly the same during that period, at over 80pc.

It comes after Lord O’Donnell, the former head of the civil service, called for public sector pensions to be cut to fund pay rises.

He said: “I will continue to argue that we desperately need a switch towards more pay less pension in the public sector. You can’t get a mortgage based on your future pension.”

Public sector pensions are “unfunded”, meaning the Government has not put aside a pot of money to meet the obligations. Instead, current taxpayers foot the bill.

Earlier this month, The Telegraph revealed that taxpayers will have to pay an extra £2.5bn to cover the cost of honouring public sector pensions after retired teachers, NHS staff and civil servants, were handed a 6.7pc pay rise, one of their biggest in a generation.

In the private sector, of the roughly 5,300 defined benefit schemes that remain, only 505 – less than 10pc – remain open to new members, according to the Pensions and Lifetime Saving Association, a trade body.

Tom Selby, of broker AJ Bell, said the growing gap between public and private sector reflected a system of “pension apartheid”.

He added: “Defined benefit pensions have withered on the vine in the private sector. One of the main reasons is that they are so generous and so costly to fund – and companies don’t want to shoulder the risk of big payouts.

“This has not been the case in the public sector, and when you look at unfunded schemes the taxpayer is on the hook for paying them. Public sector workers are the lucky ones – defined contribution pensions are still good but nowhere as good [as defined benefit].

“We have a system of pensions apartheid, and you’re always going to get calls for reform. But the likelihood of a new Government making fundamental changes are pretty low – unions would go berserk.”

The Department of Work and Pensions was approached for comment.

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