Taxpayers are facing a £1.8trillion bill for public sector pensions as ultra-low interest rates drive up the cost of generous retirement schemes.
The estimated total liabilities for NHS staff, teachers, the armed forces and others on the state’s payroll surged more than 30 per cent in the past year.
It is now almost equivalent to the total annual output of Britain’s economy.
The bill – an estimate of what it will cost to support all of the nation’s current and retired government employees – will have to be paid over decades to come.
The estimated total liabilities for NHS staff (stock photograph) teachers, the armed forces and others on the state’s payroll surged more than 30 per cent in the past year
Critics warned it is impossible to sustain ever-growing pension commitments without cutting other spending elsewhere.
Pensions industry expert John Ralfe accused Ministers of ‘passing on costs to our children and grandchildren’.
He said it was essential to be straight with the public about the eventual size of the bill, which is funded directly by taxpayers.
However, pensions at present only merit a footnote in official statistics.
Even the National Audit Office has warned that action must be taken.
‘There is a limit to the level of pensions the Government can finance annually as a proportion of GDP without having to reduce spending in other areas, or increase income through higher taxes or further borrowing,’ it said.
Public sector staff can generally look forward to lucrative ‘defined benefit’ pensions, which pay out a guaranteed percentage of their final salary.
These schemes are hugely expensive and have mostly been replaced by riskier stock market-linked ‘defined contribution’ programmes in the private sector.
Critics warned it is impossible to sustain ever-growing pension commitments without cutting other spending elsewhere
The Treasury’s total pension liabilities grew so fast last year because they are linked to Government bond yields.
These are close to record lows because the Bank of England slashed interest rates to an unprecedented 0.25 per cent after the Brexit vote.
The Bank is widely expected to begin hiking rates in November, meaning yields are likely to start to rise and the estimated pensions bill will be reduced.
The Treasury said it had headed off an even greater rise in costs by forcing public sector staff to make higher contributions to their retirement income.
A spokesman added that pensions rise each year in line with inflation as measured by the consumer prices index, which generally goes up at a lower rate than the old fashioned retail prices index measure – again, helping keep down costs.
The Treasury said reforms to public sector pensions are forecast to save £430billion by 2061-62, and that the cost would drop to 0.5 per cent of Britain’s annual economic output over the next 50 years.