Public sector workers are set to receive another bumper pension rise at the expense of taxpayers. Civil servants, teachers and NHS staff are among those benefiting from the 6.7% inflation figure announced earlier this week.
The rise comes on top of a 10.1% uplift to the “gold-plated” retirement savings announced in April. Public sector pensions are inflation proof in a way less generous private sector retirement pots are not. And the £2.3trillion cost of this pension bill is roughly equal to the total amount produced by the economy in a year.
The Office for Budget Responsibility has warned of a public sector pension scheme deficit of £7.9billion for 2023/24 – a figure that could be substantially higher in 2024/25. Former pensions minister Baroness Altmann said anyone lucky enough to be benefiting from a civil service retirement scheme was among the “pensions aristocracy”.
She said: “Public sector pensions like those for civil servants are some of the most generous secure pensions anywhere, protected by the taxpayer. Their money is more protected than most other pensions, if not all. Even the state pension triple lock is not absolutely secure, whereas for the civil service, pension is guaranteed.”
Joshua Gerstler, a chartered financial planner at the Orchard Practice, said: “Public sector pensions are probably the most generous pension schemes available to UK workers. The disadvantage of this is that everyone in the UK has to fund this via the tax that they pay.
“At some point, and we may be there already, public sector pensions, as well as the state pension, become too expensive to maintain and this needs to be dealt with sooner rather than later. Hard-working Brits need to make sure they are putting money aside for their own future.”
The pension increase is worth more than three times the average pay rise of 1.9% for private sector workers next year. Under public sector pension scheme rules, retirees are protected from rising prices by an increase in their income every April by the previous September’s rate of inflation.
Inflation remained at 6.7% in September, the same as August, according to data from the Office for National Statistics released on Wednesday.
It means next spring, around five million former public sector workers now living in retirement will receive an increase in their pensions of 6.7%.
The biggest winners are doctors, nurses and others on NHS pensions, as well as teachers and civil servants. Gary Smith, of wealth manager Evelyn Partners, said: “This increase won’t be welcomed in the Treasury as it will heap pressure on the public finances.
“It will provoke questioning on two counts. On the one hand, the growing divide between gold-plated public sector pensions and the less generous ones on offer in the private sector.
“On the other hand, the question of inter-generational fairness raises its head too. The argument is that what are probably unsustainable public pension promises are being funded by the younger workers of today who might have to work longer and receive less.”
A Treasury spokesman said: “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.”
