From the TUC

Will Osborne’s cap on top public sector pensions reduce the deficit?

07 Oct 2009, by in Pensions & Investment

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.

One Response to Will Osborne’s cap on top public sector pensions reduce the deficit?

  1. Nick Johnson
    Oct 8th 2009, 7:44 am

    This is most concerning. How can they reduce the pensions already being received by people? Some pensioners have put all their resources into their pension pot while they were working. A cap of £50000 would not have any relationship to the amount paid in, and would mean they people who had relied on their pension scheme to save will have no way of replacing their savings. This would be scandalous.

    Also, in the future, if the rules were changed to set a maximum payout, wouldn’t it have the effect of reducing the contributions to pension funds too. They surely can’t be expecting people to pay in at a higher rate that doesn’t have any relationship to the pension being paid in the end.