POLITICIANS gave warning of a yawning chasm between workers with government pensions and those from the private sector after it emerged that the public sector pension bill had ballooned by almost a fifth to £690 billion in the past year.

The bill for the public sector’s massive pensions liability comes to £11,500 for every taxpayer in Britain. The news emerged as tens of thousands of public sector workers — who include civil servants, teachers, NHS and prison staff — prepare to protest today over planned cuts to their existing pension provisions.

David Willetts, the Shadow Work and Pensions Secretary, said: “With most final-salary schemes in the private sector having closed, we are on course for creating two nations in pensions.”

According to a recent Pensions Commission report, the UK public sector employs 18 per cent of Britain’s working population but has 36 per cent of the nation’s pension entitlements.

Public sector workers are getting “double their share” of pensions, said Lord Oakeshott of Seagrove Bay, the Liberal Democrats spokesman on pensions in the House of Lords.

Watson Wyatt, the leading actuarial consultancy, calculated that the cost of unfunded public sector pensions will have increased from £580 billion in March last year to an estimated £690 billion next month.

The Government’s own calculations put the cost of its pensions promises at £425 billion only two years ago.

Stephen Yeo, a partner at Watson Wyatt, said that the huge gap between the Government’s figures and those calculated by external actuaries was owing to assumptions made on future interest rates. The Government assumes a future interest rate of 3.5 per cent when calculating its unfunded pensions liabilities. Watson Wyatt, however, uses an interest rate of 1.76 per cent, which is the rate currently paid on government bonds.

Although the Government has accepted that 3.5 per cent is too high and plans to drop its assumed interest rate to 2.8 per cent in 2005-06, Mr Yeo said that this was still too optimistic an assumption.

“Companies now have to account for their pensions liabilities on their balance sheets in a transparent way,” he said. “Given the enormous size of public sector pensions liabilities, it’s vital that they too are properly accounted for.”

Unfunded public sector pensions are paid by taxpayers as they come due rather than from a dedicated pension fund.

The Treasury said yesterday that it did not know how many public sector employees there were.

The latest figures, from the Office for National Statistics, showed that the number of public sector workers jumped by 162,000 in 2003 to a total of 5.45 million.

Watson Wyatt also attributed the surge in the public sector pension bill to the rising number of government workers.

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