Workers' pension divide exposed

The pension divide between public and private sector workers was exposed today 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 generosity of pensions for workers in the fields, 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 now 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: "The factors that make current pension commitments fundamentally intolerable for many public or private sector organisations are essentially similar.

"But there is far greater urgency for private sector companies to address problems because of greater transparency of costs and also clear accountability to shareholders.

"Techniques that private sector companies are using to reduce their past pension risks, such as offering former members options to reshape their benefits, also deserve consideration by the public sector.

"Ultimately somebody has to pay for all these commitments and, in the public sector, that falls to taxpayers one way or another. The key goal is to avoid an unfair burden on future generations of taxpayers, simply because the cost of benefits being offered now aren't fully understood."