Will Osborne’s cap on top public sector pensions reduce the deficit?
Yesterday George Osborne said:
“The Government should find ways to cap the biggest government pensions, including those for senior civil servants, local council executives and Quango managers. This cap should prevent any taxpayer-funded increase in senior government pensions already worth over £50,000 a year, and stop all taxpayer-funded pensions for these groups in future exceeding £50,000 a year. This would reduce the growth of public sector pension liabilities by hundreds of millions of pounds over the next decade.”
But the Daily Telegraph makes clear in an explanatory box that I can’t find online that this will only apply to what pension anoraks call future accruals.
What this means is that the Conservatives accept that they cannot legally cap pensions that people have already built up or in payment. What they can do is change the rules for future pension contributions so that they would not count towards building up a pension once the pension in payment is £50,000 a year.
This will not have much of an impact on pensions in payment therefore for many years.
Whether or not you think this is a good idea (and Labour MPs have also supported such a cap in the past), it won’t have much impact on the deficit. Very few public servants get such big pensions, but if the cap remains at £50,000 for ever, rather than getting uprated in each year then it would have more impact in the long term.