Public sector pensions must shift from unsustainable final salary models to a more affordable system to contain a burden of £1 trillion on the taxpayer.

According to the Getting a grip report: the route to reform of public sector pensions by the Confederation of British Industry, due to an unpredictable guarantee from employers, and staff contributions that are out of kilter with payout levels, the financial ‘black hole’ for unfunded public sector pension is £10bn every year.

According to the CBI, the current approach to public sector retirement is not sustainable, and it is urging the next government to set up an independent commission within weeks of taking office to fully investigate pensions costs.

Suggestions laid out in the CBI’s report include:

• The public sector needs to pay its way for pensions, so pensions are fully linked to the contributions made by staff and their employer.
• Pension rights and pots which have already been accrued must be protected, so staff will not lose whatever they have accumulated.
• All public sector staff should be moved from guaranteed defined benefit (DB) schemes, which include final salary and career average pensions.
• Retirement ages for existing and new public sector workers must be raised to match the state pension age.

John Cridland, CBI deputy director-general, said:

”This is a difficult and emotive area, and not one that should be rushed. Public sector workers deserve a good retirement, but they and their employers should pay their own way.

“The pensions black hole is over £1 trillion and rising, and taxpayers cannot be left to make up the difference. A new government needs to acknowledge the problem, establish the true costs and let the taxpaying public decide what they are prepared to pay for.”