Public and private sector pension gulf revealed

Published on Saturday 29 August 2009 19:51

THE pension divide between public and private sector workers was exposed yesterday as evidence showed pay packages for government employees were being topped up with benefits worth a third of their salaries.

Employers would have to contribute up to 35 per cent of a salary into workers' pension schemes to match a public-sector pension, PricewaterhouseCoopers said.

Civil servants and NHS staff could be reluctant to move jobs because of the pensions, the accountancy firm suggested.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers, said: "There are implications here for both public and private sector employers.

"A generous final-salary pension is a great draw to talent for a career in public service, but it also has drawbacks in limiting the flow of people between the public and private sectors. People with long civil service careers may be very reluctant to leave the scheme, especially now that it is rare to find anything comparable in the private sector.

"This not only creates potential distortions in the labour market but will also impose a rising burden on the taxpayer in future years as the relatively-large baby boom generation of civil servants is beginning to retire."

PricewaterhouseCoopers compared the fortunes of a state employee from the age of 21 to retirement with someone on the same pay in the private sector.

The public sector worker came out with a pension of 28,900, versus just 11,600 for the private sector employee.

Raj Mody, a pension specialist from the accountancy firm, said:

"Ultimately somebody has to pay for all these commitments and in the public sector that falls to taxpayers one way or another."