Fixing Britain’s Public Sector Pensions: Lessons from abroad

Summary

The UK’s public sector pension system is expensive and intergenerationally unfair. Most public sector workers are entitled to a defined benefit pension upon retirement. This means the value of their pension is guaranteed in their contract.

In the vast majority of cases, these pensions schemes are unfunded. There are no real assets set aside to meet these liabilities, which are instead paid for by the taxpayers of today and tomorrow. This paper explains why the current system needs to be reformed.

Reforming public sector pensions will be complex and politically contentious. The most significant obstacle is the “double payment problem.” This refers to the challenge of paying for existing pension promises while building a new system for future workers.

Drawing on international examples from Australia and the Netherlands, this paper explores how the UK could move towards a fully funded, defined contribution system. It assesses the trade-offs involved and highlights the key lessons for policymakers.

Key findings

Public sector pension spending has more than doubled in real terms. Total government expenditure on public sector pension schemes has increased from around £23.8 billion in 2000 to £54.3 billion in 2025. This a rise of roughly 128 per cent.
The cost per working-age adult has risen sharply. Public sector pension spending per working-age adult increased from around £638 in 2000 to £1,254 in 2025. This represents an increase of about 97 per cent.
The government’s unfunded public sector pension liability is enormous. Total liabilities peaked at around £2.6 trillion in 2021–22, equivalent to roughly £63,000 for every working-age adult in the UK.
The number of public sector workers receiving high-value pensions has increased significantly. In the NHS pension scheme alone, the number of pensioners receiving £50,000–£99,999 per year rose from around 15,500 in 2015 to nearly 39,300 in 2024. Over the same period, the number receiving more than £100,000 per year increased from around 200 to nearly 2,000.