Public sector pension payment projections will rise to £79bn by 2060

Projections of payments across all UK public sector unfunded pension schemes show total payments rising to more than £79bn a year by 2059-60.

The findings, from a report conducted by the National Audit Office (NAO), are expressed in terms of constant 2008-09 prices before allowing for income from employee contributions.

Estimates of future payments depend on a number of assumptions including: life expectancy, earnings growth, the size of the public sector workforce and recent changes to contain costs. Changes to these assumptions would have a large impact on the projections.

Total payments to more than two million pensioners in the UK’s four largest unfunded pension schemes were £19.3bn in 2008-09, an increase of 38% in a decade. 

Employee contributions of £4.4bn reduced the taxpayer’s share of costs to £14.9bn. The employee element grew by 56% in real terms since 1999-2000 because staff numbers and contribution rates have increased.

Amyas Morse, head of the NAO, said: “My report today sets out clearly the facts surrounding current cash payments from the public service pay-as-you-go pension schemes and the basis for future projections of these payments.

“The treasury has performed some analysis on the sensitivity of its projections to changing assumptions, but has not considered the potentially significant effects of changes in the size of the public service workforce.”

Bill McMillan, head of pensions at NHS Employers, commented: “The report is an important contribution to the debate on the affordability of pay-as-you-go pension schemes of which the NHS pension scheme is the largest in the public sector.

“Employers will welcome the much needed transparency and clarity it provides on the costs of public service pensions and their value to staff.”

The NAO will publish a second report later this year examining the impact of recent changes on the overall cost of the UK public service pay-as-you-go pensions schemes.

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