The future cost of public pensions could cost the taxpayer an extra £9bn a year from 2020.
According to experts at the Centre for Policy Studies (CPS), the government has underestimated the expected cost of state pension reforms. Its original figure of £1,230 per household is likely to be about £1,600 per household per year, the think-tank said.
This will make the future burden to the taxpayer as much as £41bn a year from as early as 2020.
The £9bn of additional costs has primarily arisen because of a "toxic tangle" between two pension proposals currently before parliament: the Public Service Pensions Bill and the Department for Work and Pensions (DWP) white paper on the single-tier pension.
The report from the CPS highlighted two extra costs from the proposals:
• about £3.4bn a year due to the loss of the public sector employers' national insurance contributions' (NIC) rebate following the end of contracting-out; and
• £4bn a year as a result of public sector employees continuing to enjoy an enhanced occupational pension, as if still contracted-out, while being entitled to further accruals within the new single-tier state pension, once it appears.
In contrast, CPS said, private sector employers who are today contracted-out will be permitted to change their scheme rules (and reduce the pensions paid) without trustee consent (not least to enable them to recoup their lost NICs rebates).
The centre also suggested that a further £2bn a year in additional cost may well arise because Lord Hutton's modelling using life expectancy rates that are now six years out of date.
Michael Johnson, analyst at the CPS, is calling for the Public Service Pensions Bill to be 'stopped in its tracks' until the white paper's cost implications for it are thoroughly examined.
This should include the use of up-to-date projections for life expectancy.
He said: "The need for bolder reform of public sector pensions is far greater than that proposed in the Public Service Pensions Bill.
"And the coalition must act now to untangle the expensive consequences of the interaction between its various pension reform proposals."
Tim Knox, director of the Centre for Policy Studies, added: "Lord Hutton claimed that his proposals for public sector pension reform would be fair, sustainable and balanced; and that taxpayers can have confidence that the costs are controlled. Sadly, none of this is true.
"Taken together, the coalition's pension proposals are unfair and the costs - at £1,600 a year for every household - are clearly not controlled. This is clearly unsustainable."
Data quality is key
Granted leave to appeal the judgement