Fixing UK's Public Sector Pensions: The £2.6 Trillion Debt We Can't Ignore
The promise of a secure retirement for our public servants is one we must honour.
But that promise is now underpinned by a financial model from a bygone era, creating a shadow national debt that threatens to destabilise the UK economy.
The uncomfortable truth is that our public sector pension system is a £2.6 trillion liability that we, and our children, can no longer afford.
It's time for a frank conversation and bold action.
A Noble Idea, A Broken System
The idea was simple: reward a lifetime of public service with a guaranteed, inflation-proofed pension for life.
For decades, generous 'defined benefit' schemes for the NHS, civil service, and teachers seemed sustainable.
A large, young workforce paid taxes, funding the pensions of a smaller, older generation of retirees.
But the ground has shifted beneath our feet. We are living longer, the 'baby boomer' generation is retiring, and the ratio of workers to retirees has shrunk dramatically.
The promises made in the 1960s and 70s are now coming due, and the bill is staggering.
A stark and indefensible gap has opened up between these guaranteed pensions and the far less generous,
market-dependent pensions for the 88% of private sector workers now saving into 'defined contribution' schemes.
The £2.6 Trillion Question?
Let's be clear about the numbers because they are breath-taking.
The total liability for unfunded public service pensions – those paid directly from your taxes each year – now stands at a colossal £2.6 Trillion.
That's not a future projection; it's the debt we owe, right now. To put that in perspective, our entire national debt is around £2.7 Trillion.
We have, in effect, a second, secret National Debt that is rarely discussed.
Every year, the cost of servicing this debt grows. In April 2024, public service pensions increased by 6.7%, a rise that outstrips the growth of the economy.
The Office for Budget Responsibility (OBR) forecasts that without reform, this spending will become an ever-heavier dead weight on our public finances,
crowding out funding for the NHS, schools, and infrastructure.
The Road to Ruin: Why the Current System is Broken
The current system is not just expensive; it's fundamentally unfair and economically damaging.
- Intergenerational Unfairness: Young people entering the workforce today are paying taxes for gold-plated pensions that they themselves will never receive.
They are shouldering a debt burden for promises made before they were born.
- Economic Drag: The ever-increasing cost of pensions crowds out spending on vital public services.
It's a dead weight on our economy, stifling growth and innovation.
- A Two-Tier Pension System: We have created a "pension apartheid" between the public and private sectors.
It is indefensible that a hospital porter or a teacher is entitled to a guaranteed, inflation-linked pension for life,
while a private sector nurse or a shop worker faces the uncertainties of the stock market.
The FixUK Plan: A Roadmap for Reform
We cannot continue to kick this can down the road.
The time for tinkering at the edges is over. We believe a bold, sequenced plan for reform is needed to make the system fair, sustainable, and put the UK back on a sound financial footing.
Phase 1: Immediate Action (2025-2027)
A Fairer Contribution Model:
• The Proposal: We propose that the government raises the employee contribution rates for all public sector workers by 1% in 2026 and a further 1% in 2027.
• Why it Works: This is a simple, fair, and progressive step. It is no longer tenable that the taxpayer contribution to these schemes is more than three times that of the employees themselves. This reform ensures that those who benefit from these gold-plated pensions contribute more towards their unsustainable cost.
• Impact on National Debt: This would generate Billions in additional revenue, directly reducing the annual deficit and slowing the growth of the national debt.
Phase 2: Structural Reform (2027-2035)
- Raising the Retirement Age:
- The Proposal: The Normal Pension Age in most public sector schemes is already set to rise to 67 by 2028.
FixUK proposes that the government accelerates the planned rise to 68, bringing it forward to 2035.
Following this, we believe legislation should be passed to create a permanent, automatic link between the public sector retirement age and life expectancy, with a review every five years.
- Why it Works: We are living longer, healthier lives.
It is only fair and logical that the retirement age for public servants should reflect this, just as it does for everyone else.
This will ensure the pension system remains sustainable as our population continues to age.
- Impact on National Debt: This would reduce the number of years that these expensive pensions are paid out, significantly reducing the long-term cost to the taxpayer.
- A Single, Modern Pension Scheme for All New Public Sector Employees:
- The Proposal: FixUK proposes that from 2028, all new public sector employees are enrolled in a new 'defined contribution' pension scheme,
just like the vast majority of their private sector counterparts. Under this plan,
existing employees would retain their current benefits, but all future accruals would be in the new, fairer scheme.
- Why it Works: This would, over time, phase out the unsustainable defined benefit schemes and end the two-tier pension system.
It would create a more flexible, modern, and affordable system for the 21st century.
- Impact on National Debt: This is the most significant long-term reform.
While it wouldn't produce immediate savings, it would halt the growth of that £2.6 trillion liability, and over the coming decades, would dramatically reduce the burden on the taxpayer.
Phase 3: A New Pension Consensus (2035 onwards)
A New, Independent Pensions Commission:
- The Proposal: Our plan calls for the establishment of a permanent, independent Pensions Commission.
Its mandate should be to review the state of the UK's public sector pensions every five years and make binding recommendations to Parliament to ensure their long-term sustainability.
- Why it Works: This would take the party politics out of pensions.
It would ensure that future governments are forced to confront the long-term challenges, rather than making short-term, politically expedient decisions that mortgage our children's future.
A Call to Action
This is not about punishing our dedicated public servants. It is about facing up to a fiscal reality that threatens us all. It is about ending the gross unfairness of a two-tier pension system that rewards one sector of society with a guarantee that the other can only dream of.
The reforms we are proposing are bold, but they are also fair, phased, and essential.
The alternative is to do nothing, to sleepwalk into a future of ever-increasing debt, declining public services, and a bitter, divided society.
That is not a future any of us should be willing to accept.
It's time to have the debate. It's time to fix our public sector pensions. It's time to secure the future of our country.
