“Reform’s plan for public sector pension is economically incoherent and would end up costing taxpayers tens of billions of pounds in the years to come, blowing a gaping hole in all of their spending promises, and casting doubt on their ability to honour their pledge on the triple lock.
“Public servants are not punchbags for Reform politicians, and their pension pots are not piggybanks that can be raided. This is yet another example of Reform’s war on working people, with people’s pensions and rights at work at risk from their anti-worker policy agenda.
“The Office for Budget Responsibility has been clear that public sector pensions are not a risk to our fiscal sustainability, the real risk would be a Reform government with no understanding of how the public finances work.”
Public sector DB schemes are unfunded. That means today’s contributions pay for today’s pensions. The full cost of paying for current pensions is carried on the Treasury’s balance sheet. Even if a new DC scheme is introduced. those payments will be made.
Member contributions as well as employer contributions to public sector DB schemes go straight into the Treasury pot and register on the balance sheet. Moving to DC would mean a loss to the Treasury of all those member contributions.
Under a DC scheme, payments today pay for the pension which will be ultimately drawn in future. These payments must also be costed by the OBR. So the public finances would be paying for all of: DB pension payouts, DB member contributions, DC employer contributions.
This represents an additional cost to the public finances of: Current DB member contributions plus DC employer contributions.
- Ballpark average of public sector DB scheme member contribution rate – 8% = £14bn annually
- DC employer contributions based on reasonable private sector comparator – 10% = £18bn
- DC employer contributions based on median private sector rate (we take this as the floor) – 4% = £7bn
- Total increased cost to public purse: £22-£32bn annually
- Reform plan to transition people onto a new pension system. Assuming that 20% of public servants transition in the first time, that would result in a fiscal hole of between £4.4 -£6.4bn by the end of their first term, with costs continuing to rise every year after that.
(All stats use total central government pay bill in RDEL (Source: HMT PESA, Table 2.1) of £198.538bn in 2025-26 and assume this includes approximate average unpensionable employer NICs of around 10%)
In November 2025 Prospect wrote to Richard Tice explaining the problems with the policy
Cost of current DB schemes as a percentage of
The latest OBR long-term projections are from 2024.
| |
2023-24 |
2028-29 |
2033-34 |
2043-44 |
2053-54 |
2063-64 |
2073-74 |
| Cost as a %age of GDP |
1.9 |
1.9 |
1.8 |
1.5 |
1.4 |
1.4 |
1.4 |
They are available from: CP 1142 – Office for Budget Responsibility Fiscal risks and sustainability
Table 4.3 – ‘public service pensions’ figures.
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I was with the union view until I read the part that says “The Office for Budget Responsibility has been clear that public sector pensions are not a risk to our fiscal sustainability …”
A personal view, but I feel that OBR assertion is too complacent and likely wrong in the longer run, because it confuses “not an immediate cash crisis” with “no fiscal risk”.
The OBR’s recent sustainability analysis points to long-term pressures from state pensions, ageing, and the triple lock that can materially worsen the public finances.
Public sector pensions are often described as “manageable” only because many are unfunded and spread across future tax receipts rather than showing up as a short-term and/or medium-term market funding problem.
That does not make them irrelevant to fiscal sustainability; it just means the obligation cost impact is delayed, not eliminated.
The OBR’s statement seems to imply a binary distinction between “risk” and “not a risk,” when the real issues are one of degree and timing.
Even if public sector schemes are not the dominant near-term threat, they still add to longer-run spending commitments in central and local government budgets already under pressure from demographics, health costs, and debt servicing.
In a high-debt, ageing society like ours, “manageable for now” is not the same as “no sustainability risk”.
(Just to start off by declaring an interest – I’m Prospect’s Pension Officer.)
The wording could perhaps be a bit clearer – the OBR didn’t assert that these schemes were not a fiscal risk. That was our interpretation of the OBR’s forecasts showing that they were projected to cost much less in the future (as a percentage of GDP) than they do today.
Maybe something like “The OBR is clear that the cost of these schemes is projected to become increasingly affordable over time, so they do not represent a risk to our fiscal sustainability.” would have been even tighter / clearer.
But I don’t think either way if putting it is wrong.
I agree, if DB was so risky the private sector would have largely abandoned it by now except for perhaps executives and other highly prized employees.
What possible risk could there be in just promising money to people in the unknown future.
Only a prudent person would invest money in something like that to unburden future generations.
Indeed, why don’t we all just move into the same DB based public sector pensions, pay our money to government vs DC pots, and generate a huge boost for government funds?
If it works for the subset of public sector workers surely at UK wide scale it’d be even better?
Making this generation pay twice (for the previous generations’ pensioners and the current generation’s workers) in order to alleviate a burden on future generations that is already projected to be smaller than the one this generation is bearing (even before asking it to pay twice) does not seem to be the most intergenerationally fair approach. (Never mind fiscally sustainable in the short term.)
It is a great pity that we over-regulated the private sector into a very different approach to providing retirement benefits. The risk doesn’t go away. It’s a matter of who bears it and how it’s managed. The unfunded public service schemes (cost caps included) do so very well. Hopefully the private sector will find its way back to something more like it soon.
Funded / unfunded is a bit of a red herring – either way pensioners will always have to rely on the efforts of workers.
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