Cutting public sector pensions by just five per cent could pay for the construction of five new hospitals, analysis has revealed.
Minor cuts to the pensions bill could have huge implications for the nation’s finances as the Government grapples with the ballooning cost of public pensions, research by the Taxpayers’ Alliance (TPA) has shown.
Government plans to reduce the outlay by offering higher pay rises were revealed earlier this week.
Under the proposed government scheme, millions of public sector workers such as teachers, nurses and doctors would be offered higher salaries in return for lower pensions.
A one per cent cut would pay for 13,000 more NHS nurses, the TPA’s analysis shows.
A five per cent cut would pay for the resurfacing of all of Britain’s motorways or the construction of five new hospitals.
The analysis highlights the ballooning size of the bill, which still promises gold-plated final salary pensions to millions of workers, which is now thought to stand at £2.6 trillion – larger than the size of the UK economy itself.
Darwin Friend, the TPA head of research, said: “The flabbergasting cost of public sector pensions is an enormous millstone around the neck of the state, taking away billions that could be put to much better use.
“For a long time now these retirement schemes have been overly generous, particularly given they are completely unfunded and come out of the contributions of taxpayers rather than a clearly defined pot.
“It’s time for the Government to radically reform public sector pensions by moving all new employees onto a defined contribution scheme, rather than gold-plated defined benefit schemes.”
Unions are reportedly split on the proposals, while the Treasury has not yet given a considered view.
The National Education Union, which represents about half a million teachers, has described the proposals as a choice between “poverty now or in retirement”.
A spokesman for Unite, one the UK’s largest trade unions, called it “nothing more than rearranging the deckchairs on the Titanic” and called for more spending on public services.
It is hoped that the scheme will solve recruitment problems in Britain’s public services by attracting and retaining staff without crippling the nation’s finances.
The idea, which has been mooted by previous governments without ever materialising, has drawn criticism from economists who warn that more needs to be done.
Professor Len Shackleton, of the Institute of Economic Affairs and professor of economics at the University of Buckingham, said: “It’s not something a government should enter into to grab a quick headline.
“The whole area of public sector pay and conditions needs rethinking, and the power of unions reduced. I can’t see this under the current government.”