The Public Sector Pensions Commission has accused the government of drastically underestimating the cost of unfunded public sector pensions.
The commission says that public sector employees need to save more than 40% of their annual salary to fund their benefits but are only putting aside 20%, meaning taxpayers are having to plug the gap. In 2008 the gap was £2.29 billion and by 2011 it is expected to reach £4.6bn.
In its report Reforming public sector pensions: solutions to a growing challenge, the commission said £10 billion a year could be saved if the retirement age was raised to 65 for state workers. Switching from a pension based on final salary to payments based on a career average salary would also save £10 billion a year and a two-percentage-point rise in employee pension contributions would save a further £2 billion.
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