Reform’s public-sector pensions plan could cost billions extra, union warns | Reform UK

Plans to make Britain’s public sector pensions less generous could cost billions extra a year and cause a ticking time bomb on public finances, a leading union has warned.

Prospect said the plans, announced by the party’s deputy leader Richard Tice, would damage the public finances rather than save money and “cost taxpayers tens of billions of pounds in coming years”.

The union opposed Tice after he said he wanted to change public sector pensions from a defined benefits system to a defined contribution scheme for new entrants, a move that would mirror what happens in the private sector and result in less generous payouts in retirement.

A defined benefit plan provides a guaranteed annual income for life after retirement, while a defined contribution annuity provides a pot that can be withdrawn until it runs out.

Tice said he believed Prospect had misunderstood his proposed changes and that the move would help prevent the country from going bankrupt due to massive unfunded pension liabilities that he said run into trillions.

“It has grown from £750 million to between £1.5 trillion and £2.5 trillion in the last 20 years,” he said.

“Liability is rising and off-balance sheet, which is one of the reasons why the Office for Budget Responsibility’s figures over the next 25 years show our debt-to-GDP ratio rising from 100% to 200% under a low-productivity scenario.

“Given that we have some room in the electoral process, let’s discuss this issue rationally among adults. I want to sit down with the unions and say: Do you want to take the responsibility of looking your grandchildren in the eye and saying ‘our union has bankrupted your future?’

“I’m not saying change the existing terms and conditions. I’m saying it for new employees. There’s a huge difference. There’s a cash flow impact but it’s very small compared to the balance sheet liability, which is much, much larger.”

Tice said this was similar to the issue of financing the triple lock on state pensions, which Reform refused to guarantee would be maintained if the party came to power.

Prospect said current arrangements for superannuation were affordable. The union estimates that the Reform plans will create a net cost because public sector defined benefit schemes are not funded, so today’s contributions will cover today’s pensions.

In defined benefit plans, employee and employer contributions go directly to the Treasury pot and are recorded on the balance sheet. Prospect said moving public sector pensions to such schemes would mean the Treasury would lose all existing member contributions. He added that payments made today will also cover future pensions.

Prospect general secretary Mike Clancy said: “Reform’s public sector pension scheme will set off a ticking time bomb in the public finances that will cost taxpayers tens of billions of pounds over the coming years and create a huge gap in tax promises.

“Cutting pay and staff while attacking public sector pensions will worsen the current recruitment and retention crisis and throw the services people rely on into staff chaos.

“Public servants are not Reform politicians’ punching bags, and their pensions are not piggy banks to be raided. These are the people all governments rely on to deliver our services, and Reform would do well to remember that.”

The Treasury’s independent forecaster, the Office for Budget Responsibility, said: “The real test of the affordability of these pensions is the likely trajectory over time of gross payments, determined by the tax base that will fund the payments.

“In the long-term forecasts in the 2024 fiscal risks and sustainability report, we predicted that annual payments from the schemes would fall from 1.9% of GDP in 2023-24 to 1.4% of GDP in 2073-74.

“This is based on the assumption that average earnings-related contributions increase faster than payments, which are assumed to be increased by CPI inflation.

“This suggests that, if these assumptions hold, these programs would not pose a significant fiscal risk on their own, but they constitute a significant portion of the government’s overall obligations, which are projected to continue to increase over the next 50 years.”

Speaking in the City of London on Wednesday evening, Tice said: “We need to have a grown-up debate about unfunded defined benefit pension schemes. I don’t think it’s unreasonable to sit down with unions and say: ‘Look, we can do it differently for new employees.’

“The private sector did this 20 to 25 years ago, but if we’re not even ready to have that discussion, then we can’t make the progress we need because … it’s completely unsustainable.”

Tice also revealed that abolishing inheritance tax remained Reform policy, despite party leader Nigel Farage rescinding his £90bn tax cut promise in a speech earlier this week.

“We need to get rid of inheritance tax to keep people here and attract people (the brightest, best, most successful entrepreneurs) back to the UK,” Tice said.