Business leaders in Berkshire have backed calls for a radical reform of public sector pensions, which they say are currently overburdening the taxpayer.

The Institute of Directors and the Institute of Economic Affairs have teamed up to set up the Public Sector Pensions Commission which has called on the Government to dramatically change the way pensions for NHS staff, teachers, police, civil servants and other public employees, are delivered.

The Commission calls for parity with the private sector regarding the funding of pensions. It highlights the cost to the taxpayer of funding retirees from the public sector. In 2010/11 the cost of the unfunded public sector pension schemes are projected to total over £25b. Of this, £7b is made up by employees, with the taxpayer contributing £13.5b, through the employers and £4.5b through the Treasury, to meet the further shortfall.

The Commission has also proposed an immediate increase in employees’ contributions and a switch to a system in which workers would get a lump sum with which to buy an annuity income in retirement.

Reading-based Rodger Broad, Director for IoD South, said: “This is not about the private sector knocking the public sector, but a matter of simple economics. Many people who are saving towards their own retirement must be wondering why the majority of the workforce is supporting other people’s pensions through their taxes.

“The value of public sector pensions stands at over 40% of salary, compared with about 20% for workers in the private sector. In reality public sector workers are only putting away 6% and their employers 14%, with the remaining sum being met by the taxpayer.

“It was traditionally argued that public servants were rewarded with golden pensions because their salaries were low by comparison. But now that they match, and in many cases exceed, the salaries paid in industry, that argument no longer holds water.”

He added that it was time the public sector faced up to the sort of changes that have been seen affecting private sector pension schemes for some years, in which employers have been forced to end final salary schemes.

“We have an ageing population and a fiscal crisis. Now is the time to make long-term plans to reduce the burden on the taxpayer. A simple step, such as an immediate increase in public sector employee contributions of two per cent would bring in up to £2 billion a year.”