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The Actuary The magazine of the Institute & Faculty of Actuaries

How much do public sector pensions cost?

A think tank report from the Public Sector Pensions Commission, supported by the Institute of Economic Affairs and Institute of Directors, suggests public sector pensions cost the government around 40% of the salaries of their members on average. This compares with around 20% which is paid in to the schemes.

Peter Tompkins, chairing the commission, said that it was a “matter of good economics that public sector employers and employees should bear the full cost of their pension provision as it accrues”. The difference in assessment comes down to the level of discount rate used in deriving contributions or value. The government has used a return of 3.5% per annum above inflation whereas the think tank has chosen to use today’s rate of return on index-linked gilts of 0.8%. After the headlines have gone away, there may be more focus on what is actually the most appropriate rate to be using.