The trade union Prospect has warned that the pension reforms proposed by Reform UK could end up costing taxpayers billions of extra pounds each year and create a looming “ticking time-bomb” for the public finances. The plans were laid out by the party’s deputy leader, Richard Tice, who wants to shift new entrants into public-sector employment from a defined-benefit (DB) scheme to a defined-contribution (DC) model. Prospect argues that rather than saving money, the change would undermine the Treasury’s cash-flow and burden future generations.
Under a defined-benefit scheme, public-sector staff receive a guaranteed annual pension for life, based on salary and years of service. Reform UK’s proposal would replace that model — for new employees only — with a defined-contribution approach, where pension outcomes depend on how much is paid in and how the pot grows, meaning lower and less certain retirement income. The union says that the current DB systems are affordable, because contributions and employer payments flow into Treasury coffers and thus register on the balance sheet. Changing to a DC model could remove these inflows and leave the Treasury paying out future pensions without the offsetting contributions.
Prospect’s Warning: A Fiscal “Time-Bomb”
Prospect’s general secretary, Mike Clancy, asserted: “Reform’s plan … will end up costing taxpayers tens of billions of pounds in the years to come and blow a gaping hole in their tax promises.” He further warned that targeting public-sector pensions amid pay cuts and staff reductions would worsen recruitment and retention problems in vital services and risk plunging public services into staffing chaos.
Tice’s Justification: Unfunded Liabilities and Future Debt
Tice argues that the UK’s unfunded pension liabilities have ballooned — from an estimated £750 billion to between £1.5–2.5 trillion. He maintained that though the cash-flow effect of the reform may be modest, the balance-sheet liability is “much, much greater.” He likens the risk to the state pension’s triple lock: if unchecked, obligations could push the country into a debt scenario where public debt-to-GDP under a low productivity scenario could rise from about 100 % to 200 % over 25 years.
According to the Office for Budget Responsibility (OBR), pension payments by themselves may not pose a major fiscal risk but they do form a large part of government liabilities.
The debate comes at a time when the UK is reviewing its pension architecture more broadly. In its “Pensions Investment Review”, the government explored reforms of the DC market. Meanwhile, the OBR’s long-term projections indicate that public-sector pension payments could fall from 1.9 % to 1.4 % of GDP by 2073-74 — hinting the current DB system is manageable on current assumptions, though liabilities remain large. The union sees Reform’s proposal as a gamble with those assumptions.
Potential Consequences and Risks
– Cash-flow gap: Transitioning new hires to DC means current contributions would no longer plug into the Treasury, while existing pensioners still draw under DB arrangements, generating a structural shortfall.
– Increased cost in future: While DC may reduce long-term liability in theory, the upfront cost of changing systems and managing the shift could raise annual spending before any savings materialise.
– Service pressure: Public-sector retention issues — already acute in many areas — could be exacerbated if pension expectations are lowered, making jobs less attractive.
– Political fallout: The union argues public-sector employees are not “piggybanks” for political savings, and any perception of undermining their pension rights could trigger industrial unrest.
– Uncertain gains: Reform claims cost-savings potential, but that depends on market returns, contribution levels and longevity assumptions — variables that carry risk.
Reform UK believes that shifting new hires into defined-contribution schemes is a prudent response to the growing off-balance-sheet pension burden. Prospect strongly disagrees, seeing the move as fiscally irresponsible and damaging to public-services integrity. The outcome will depend on detailed modelling of costs, careful transition design and public-sector workforce response.
