A leading pension consultant has announced that the rise in public sector pension age will not lead to any savings for the Government.
Consultant John Ralfe, said: “The total cost of the more generous, but later pension, is virtually the same as the cost of the current, less generous but earlier pension,”
The Government was quick to deny the research and called into question the findings of the study, saying that the research only looks at one section of the reforms on pensions and that Britain stands to save billions of pounds by raising the pension age to 67.
A Treasury spokesperson said: “This analysis is partial,”
“It is based on stylised assumptions rather than an overall workforce model, and only includes one of three strands of public service pensions reform which will deliver savings, whereas the overall cost ceilings agreed with unions include all three.”
The research looks at accrual rates, which shows the rate at which a pension fund builds up. These have increased substantially since the reforms. The study also shows that NHS workers and teacher’s pensions will automatically increase in the new scheme.
The increase works by a pre-agreed percentage over inflation using the Consumer Prices Index (CPI), they don’t change if there is a salary freeze or if salaries increase at a rate lower than the CPI.
“The Teacher’s Pension Scheme (TPS) and NHS have annual increases over CPI baked in, which gives no flexibility to have a pension freeze along with a pay freeze,” Mr Ralfe says in the study.
“Pensions will still go up, even if pay is frozen.”
The report tells us the taxpayer is charged for 31% of the average public sector wage, at the retirement age of 60. But after the reforms, the taxpayer will still be paying almost the same amount, 31% of a teacher’s wage, 32% of an NHS employee’s wage and 26% of a civil servant’s salary, thus not saving any money.
The Government has replied by stating that the report only looks at part of the picture, because as well as raising the age of retirement for all public sector works, the Government has increased the size of the contributions that employees must pay by 3.2%.
It has also changed which inflation index it looks to for pension rises form the Retail Price Index (RPI) to the Cost Price Index (CPI). The RPI is generally the higher of the two as it looks at mortgage repayments.
The Government are adamant that all of the changes taken into consideration together amount to sizable savings for the taxpayer.
“The government has been clear that reforms to public service pensions will save the taxpayer tens of billions of pounds over the next few decades and significantly improve the long-term fiscal sustainability of this country,” the Treasury spokesperson said.
Its surprising how many people enter retirement without a plan. Would you plan a car journey without a map or indeed these days taking your sat-nav? No! I doubt very much you would, so why do so many retirees drift into retirement without a plan?