Public Sector Pension Liabilities Top £200,000 Per Household, Analysis Suggests

Britain’s unfunded public sector pension promises have climbed to the equivalent of more than £200,000 per household, according to new analysis that has prompted warnings over the burden on younger taxpayers.

As reported in the Telegraph, Neil Record, a former Bank of England economist, estimates that outstanding public sector pension liabilities will reach £5.8 trillion by the end of the 2024 to 25 financial year, up from £4.9 trillion the year before.

With around 28.6 million homes in the UK, that equates to a cost of £203,000 per household.

Record said the scale of the commitment had surged beyond what taxpayers could reasonably bear. “The burden now facing taxpayers is out of control,” he said. “Not only is Rachel Reeves heaping more taxation on millions of ordinary working people, the Government is continuing to allow a privileged pension elite, public sector workers, to mortgage taxpayers’ futures by heaping higher and higher future public sector pension costs on them.”

He added that the generosity of unfunded schemes was “morally and economically indefensible”, arguing that future taxpayers were being asked to support retirement packages that they themselves would never receive.

Concerns over fairness between generations

Angus Hanton of the Intergenerational Foundation said the growing liability risked deepening inequality. “It’s a betrayal of younger people allowing this public sector pension commitment to build up,” he said.

Hanton argued that the private sector’s shift away from defined benefit pensions, due to their cost and volatility, underscored the imbalance. “These numbers also illustrate the extent to which the civil service and senior politicians are totally compromised by being in the scheme themselves,” he added. “If these schemes were decided by an independent outside body, you can be sure they’d be less generous.”

Public sector pensions currently offer guaranteed, inflation linked income based on average career earnings. Although final salary schemes were closed in 2015 in an attempt to curb costs, liabilities have continued to rise sharply.

Increasing costs for taxpayers

Employer contributions to major public sector schemes have also risen. In the NHS pension scheme, which is the largest in the country, contributions increased from 20.6% to 23.7% in April 2024, adding £3.5 billion a year to taxpayer costs. Teachers’ Pension Scheme contributions rose from 23.6% to 28.6%, increasing the bill by almost £2 billion.

By contrast, private sector employers often contribute as little as 3% into workers’ pensions.

Budget changes raise further debate

The figures follow Chancellor Rachel Reeves’ Budget announcement last month, which included a £4.7 billion reduction in the value of salary sacrifice arrangements. From 2029, pension contributions will only escape National Insurance up to £2,000. According to AJ Bell, a 35 year old earning £50,000 is likely to accumulate £22,000 less in their pension pot by age 65 as a result.

Public sector workers will only be affected if they make voluntary additional contributions.

Read the full article in The Telegraph.