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Commission says public sector employees must contribute more to pensions

Staff contributions have been at an 'artificially' low level, says think-tank.

A think-tank commissioned by the Institute of Directors (IoD) and the Institute of Economic Affairs (IEA) has controversially called for an immediate 2 per cent hike in contributions from Britain's public sector employees - on top of an impending pay freeze announced by the government earlier.

The Public Sector Pensions Commission has proposed a series of changes to the pensions system, which it said must apply to all pension holders and not just new members.

It contends that the value of unfunded public-sector pension is actually over 40 per cent of salary, while the combined employer and employee contribution rates - currently about 20 per cent of salary - has been "artificially set" low.

The commission's recommendations also include deferred pension ages and a reduced entitlement for each year of service.

Employee unions have accused the IoD and IEA of "simply wanting to reduce taxes for business and the super-rich", arguing that they are trying to reduce public sector pensions down to a level imposed by them on the private sector.