State workers better off

TAXPAYERS face a colossal £690bn bill to fund the pensions of public sector workers.

It will mean a £300 increase in annual tax bills for every household over the next three decades.

Last night industry experts warned of a growing resentment among private sector workers, whose retirement prospects have been savaged by the squeeze on final salary schemes, that the generous benefits of their public sector counterparts were effectively being protected by the taxpayer.

It emerged yesterday that the number of final salary pension schemes in the public sector has overtaken those in the private sector for the first time in 30 years.

Final salary schemes, deemed the gold standard of retirement packages, have been abandoned by hundreds of private firms as simply too expensive to fund. Only 15% of private sector workers now have one. But they are still available to 90% of local and national government employees.

The professions include teachers, nurses, doctors, police and firemen - along with a growing army of bureaucrats.

The number of public servants enrolled in the schemes has risen from 4.7m to 5.5m in the last five years, according to the Government Actuary's Department. By contrast the number of private sector workers who enjoy the schemes has fallen from 4.6m to 3.6m.

Final salary schemes guarantee an inflation-proof retirement income based on a percentage of earnings and length of service.

The schemes worked well for private companies when the stock market was booming and investments were generating billions. But following the global stock market collapse they became a noose around their neck.

Even today, despite a huge increase in contributions from companies and individuals, some 90% of private sector final salary schemes are in the red to the tune of £130bn.

Many firms have switched to defined contribution schemes for new staff, which are generally far less generous. Pension funds were further depleted by Gordon Brown's tax raid on share dividends in 1997.

The Chancellor removed a vital tax break which cost private sector schemes £5bn a year. In the face of all of this, and with an ageing population intensifying pressure on pension funds, the public sector schemes have been maintained.

It is not the only area in which Labour has rewarded the public sector. Under its tenure, the average pay for a public sector chief executive has gone beyond the £100,000-per-year barrier. City council chiefs can now expect to earn up to £200,000 a year.

The public sector pensions bill is currently running at £16bn a year. This is set to rise by 50%, excluding inflation, over the next 30 years. By 2035, the extra tax required to fund this would equate to just over £300 per household.