The public sector pension bill hit £56bn: what the number really means

Educational, not advice. This article explains what the widely reported “record £56 billion public sector pension bill” figure actually measures, why “unfunded” does not mean a scheme is in deficit, and what the independent forecasters project for the years ahead. It is general information, not personal financial advice. For free and impartial guidance, see MoneyHelper. For regulated advice on your own circumstances, speak to an adviser authorised by the Financial Conduct Authority.

In short

• Public sector pension payments reached a record £56 billion in 2025/26 (about £55.6 billion on the precise figure), roughly double the £27.8 billion paid in 2011/12. That comparison is in cash terms, not adjusted for inflation.
• That £56 billion is a gross figure: the total paid out to retired members. Most of it is covered by pension contributions already coming in from today’s workers and their employers.
• In the most recent audited year (2023/24), gross payments were £55.0 billion, contributions were £49.9 billion, and the balance met from general taxation was about £5.1 billion, roughly a tenth of the headline number.
• “Unfunded” describes how a scheme is financed (pay-as-you-go, with no invested pot), not that it is in deficit or unaffordable.
• The Office for Budget Responsibility projects the long-term cost falling as a share of the economy, from 1.9 per cent of GDP to 1.4 per cent, even as the cash total keeps rising. The State Pension, a separate thing, is projected to rise.
• For members, none of this changes the pension you have already built up. It is set by your scheme’s rules and backed by government.

Where the £56 billion figure comes from

In mid-July 2026, Treasury figures reported by the Daily Telegraph put the total paid out to retired public sector workers at a record £56 billion in 2025/26 (about £55.6 billion on the exact number). The coverage set that against £27.8 billion in 2011/12, so the cash cost has roughly doubled over 14 years. The bill is expected to rise by a further £2.6 billion in the current tax year. Divided across the United Kingdom’s 29 million or so households, £55.6 billion works out at about £1,917 per household.

The same reporting, drawing on Freedom of Information requests, set out how the payments are distributed. In 2025/26, 71,155 retired public sector workers received a pension of more than £50,000 a year, 3,775 received more than £100,000, and 23, all former civil servants, received more than £150,000. Those larger pensions overwhelmingly belong to people who spent long careers in senior roles: hospital consultants, headteachers, senior military officers and senior civil servants. They are the top of the distribution, not the typical retired nurse, teaching assistant or clerical officer.

Hold two things in mind before drawing conclusions from the headline. First, the “doubling since 2011/12” is a cash comparison. Public sector pensions in payment are increased each April in line with inflation, and the years since 2021 have seen unusually high inflation, so a large part of the rise is simply prices working through the numbers rather than schemes becoming more generous. Second, and more importantly, £56 billion is a gross figure. To understand what it costs the taxpayer, you have to look at what comes in as well as what goes out.

The number most of the coverage leaves out: gross versus net

This is the single most important point in the whole story, and the one most headlines skip. The £56 billion is the total cash paid to pensioners. It is not the amount general taxation had to find on top of everything else. Every year, current employees and their employers pay pension contributions, and in these schemes that money goes straight out again to pay current retirees. Most of the £56 billion was therefore already flowing in.

The audited figures make the scale of it clear. In 2023/24, the most recent year in the Whole of Government Accounts, the unfunded schemes paid out £55.0 billion and took in £49.9 billion in contributions from employees and employers. The shortfall met from general taxation was £5.1 billion, a little under a tenth of the gross figure. Employer contributions alone run at roughly £46 billion a year across the schemes, so contributions cover the large majority of the bill before employees’ own payments are even counted.

The government’s own independent forecaster goes further. The Office for Budget Responsibility keeps a dedicated forecast line for public service pension payments net of contributions, and on that measure the schemes are running close to balance: its forecasts have shown 2025/26 at roughly break-even, even a very small surplus. Net payments have fallen from about 0.4 per cent of GDP in 2010/11 to around 0.1 per cent today. On the OBR’s own fiscal measure, in other words, these schemes are not a £56 billion drain on the exchequer this year at all.

None of this makes “taxpayer-funded” wrong. Employer contributions come out of departmental budgets funded by general taxation, so in the broad sense the taxpayer does stand behind these pensions. What the gross headline can imply, and what is not true, is that the state had to find an extra £56 billion this year that it did not have to find before. It did not. Most of that money was already budgeted as part of the ordinary cost of employing NHS staff, teachers, civil servants and armed forces personnel.

The counter-argument: is a surplus really a surplus?

There is a serious objection to the reassuring version of this, and it deserves a hearing rather than a brush-off. It resurfaced in July 2026, when Neil Record and the think tank the Centre for Policy Studies argued in the press that the recent picture of contributions comfortably covering payouts is misleading, and that describing the difference as a surplus flatters the true position. Daniel Herring of the Centre for Policy Studies put it bluntly: “The claim that these pensions pay for themselves is an accounting illusion.”

The disagreement turns on a distinction worth understanding, because it explains how two sets of numbers about the same schemes can both be accurate. The figures above compare cash in against cash out in the same year: contributions received against pensions actually paid. The critics compare something different, contributions received against the cost of the extra pension that serving staff earned that year. The second is an accrual measure. It can show a comfortable margin at the very moment the cash measure looks tight, or the reverse, and it will not match the cash figures quoted above because it is not trying to. Neither measure is a trick. They answer different questions, and any figure you see quoted on this subject is worth checking against which of the two it is.

Why the two have pulled apart recently is not mysterious, and it is the mechanism described further down this page. The 2023 cut to the SCAPE discount rate raised the assessed cost of the schemes, so employer contributions rose sharply from April 2024. The NHS Pension Scheme employer rate went from 20.6 per cent to 23.7 per cent of pensionable pay. The Teachers’ Pension Scheme went from 23.68 per cent to 28.68 per cent, including the administration levy. Rates set that way are expected to overshoot in some years and undershoot in others, which is what the Treasury said when it responded to the July coverage: “Contribution rates are set at levels needed to meet the cost of benefits being accrued by current employees, plus or minus an amount to reflect any historic under or overpayments.”

We are not going to tell you which side of that argument is right, and you do not need us to, because it does not reach your pension. It is a dispute about how the government accounts for a cost, not about what you have earned. Nothing in it changes anyone’s entitlement, and the correction is already in train: the discount rate moved again in 2026, and employer contributions for the main schemes are set to come down from April 2027. What that does and does not mean for members is covered in our guide to the 2027 fall in employer contributions.

What “unfunded” actually means

Most of the large public sector schemes are “unfunded”, and the word causes a lot of needless worry. As the Office for National Statistics puts it, “unfunded” describes the payment mechanism, not a financial deficit. In an unfunded scheme, the contributions paid in by today’s members and their employers go straight out to today’s pensioners, rather than into a separate invested pot. It is pay-as-you-go, and it is how the NHS, teachers’, civil service, police, firefighters’ and armed forces schemes all work.

There is one major exception. The Local Government Pension Scheme (LGPS) is funded: contributions are invested in one of dozens of separate funds and future pensions are paid from that invested money. The LGPS holds around £550 billion of assets. That difference matters for how each type of scheme is accounted for, not for the strength of the promise. Our guide to how UK public sector pensions actually work sets out the funded and unfunded distinction in more detail.

You will sometimes see a very large “liability” figure attached to the unfunded schemes, of the order of £1.4 trillion. That is a different measure again: the estimated total value of all the pension promises already built up, payable gradually over many decades, not a bill due now. Because these are pay-as-you-go promises met from future tax revenue as they fall due, that liability sits outside the United Kingdom’s headline national debt measure. Think of it as a long-term commitment rather than a debt that has to be refinanced. And the government’s obligation to pay is just as firm for an unfunded scheme member as for a funded one. Funding is about mechanism, not about whether the pension will be paid.

Why the cash figure has grown

Several ordinary forces push the cash total up over time, none of which involves the schemes quietly becoming more generous.

• Inflation. Pensions in payment rise each April in line with the Consumer Prices Index. After the high-inflation years from 2021 onward, that indexation alone adds a substantial amount to the cash figure every year.
• More pensioners. The big public services expanded through the second half of the twentieth century. Those larger cohorts are now retired and drawing their pensions, so there are simply more pensions in payment than there were a generation ago.
• A change in how the schemes are valued. A cut to the technical “SCAPE” discount rate in 2023 raised the assessed cost of the schemes and pushed up employer contributions from April 2024. That rate was increased again in 2026, which is why employer contributions are now set to fall from April 2027.
• The McCloud remedy. Correcting the age discrimination identified in the 2015 reforms has added a one-off cost estimated at around £17 billion across the schemes.

Put together, these explain a rising cash number without implying that anything has gone wrong. The more revealing question is not whether the pound figure is bigger than it was, which it almost always will be, but whether the cost is growing relative to the size of the economy. That is where the independent projections come in.

Is it “unsustainable”? What the OBR actually projects

The £56 billion story arrived with some strong language attached. Baroness Neville-Rolfe, a Conservative peer and former minister who has tabled a parliamentary amendment calling for a review of the schemes, said she had “campaigned for a review of public sector pensions because they are unfunded and unsustainable.” The Adam Smith Institute, a free-market think tank, has argued that public sector pensions have “skyrocketed above those of the private sector.” Several outlets described the pensions as “gold-plated.” These are legitimate contributions to a real debate. They are also opinions, held by named people and organisations, not neutral descriptions of fact.

Set against them is what the government’s own independent fiscal watchdog projects. In its long-term work, the Office for Budget Responsibility estimated that annual payments out of the unfunded schemes would fall from 1.9 per cent of GDP in 2023/24 to 1.4 per cent of GDP by 2073/74. In plain terms, the cost is projected to shrink as a share of the economy over the coming decades, even though the cash figure keeps climbing. The reason is that contributions are linked to earnings, which tend to grow faster than the inflation-linked pensions in payment. And when the OBR lists the big long-term pressures on the public finances, it names health, social care, the State Pension and others. Public service occupational pensions are not on that list.

This is where a common confusion needs heading off. The State Pension, the flat-rate payment almost everyone receives from the government, is a genuinely rising long-term cost, projected to climb from around 5 per cent of GDP today toward roughly 9 per cent by the mid-2070s as the population ages. That is a different thing from the occupational pensions of NHS staff, teachers and the rest, which are the subject of the £56 billion story and are projected to fall as a share of GDP. The two numbers live in the same reports and are easy to mix up, so it is worth being clear which is which.

The schemes were also substantially reformed within living memory. Following the independent review led by Lord Hutton, a former Labour work and pensions secretary, they moved in 2015 from final salary to a career-average basis, and most linked their pension age to the rising State Pension Age. Those reforms were designed precisely to bring the long-term cost under control, and the OBR’s falling-share projection reflects them working through. Whether public sector pensions are still “too generous” relative to the private sector is a fair question that reasonable people answer differently. Whether they are, in the technical sense, “unsustainable” is a question the OBR’s own numbers do not currently support.

What it means for you as a member

If you are a member of one of these schemes, the practical message is reassuring. The pension you have already built up is a legal entitlement set by your scheme’s rules, and accrued benefits are protected. A political debate about the total cost of the schemes does not change the formula that calculates your pension, the contributions you pay, or the government’s commitment to pay what has been promised. That commitment is the same whether your scheme is funded, like the LGPS, or unfunded, like the NHS or teachers’ schemes.

That does not mean nothing ever changes. Governments can and do reform pensions for future service, as happened in 2015, and there will always be a live argument about the balance between public sector pay, pensions and the wider public finances. But there is a clear difference between a debate about the future shape of the schemes and any threat to the pension you have already earned. If you want to understand your own position in detail, your scheme’s annual benefit statement is the place to start, and MoneyHelper offers free and impartial guidance.

Common questions

Pension Plain’s take

The distinction most of the coverage blurs is between a gross figure and a net cost. Sixty-odd billion pounds is a real number, but the great majority of it is contribution income being recycled to pay pensions, and the part that actually falls on general taxation is a fraction of the headline. “Unfunded” is a description of plumbing, not a verdict on affordability. And the government’s own forecaster expects the cost to drift down as a share of the economy, not up. There is a genuine debate to be had about whether public sector pensions are more generous than they should be, and about how the country pays for an ageing population. Both deserve serious attention. Neither is the same as the claim that a £56 billion pension bill is quietly bankrupting the country. For members, the useful thing to carry away is the calmest part of the story: the pension you have earned is set by rules and backed by government, and a headline about the total cost doesn’t change it.

This article is for general information and does not constitute financial advice. Pension Plain is not authorised or regulated by the Financial Conduct Authority. Tax and pension rules depend on individual circumstances and may change. For free and impartial guidance, contact MoneyHelper; if you have a complaint about how a scheme has treated you, contact The Pensions Ombudsman; and for advice on your own situation, speak to an FCA-authorised adviser.

Key sources

• Office for Budget Responsibility, Fiscal risks from public service pensions (funded versus unfunded schemes; the 1.9 per cent to 1.4 per cent of GDP projection).
• Office for Budget Responsibility, Public service pension payments (net) (the net-of-contributions measure and its recent path).
• Office for National Statistics, Pensions in the public sector finances: a methodological guide (“unfunded” as a payment mechanism, not a deficit).
• Institute for Government, Public sector pensions (gross payments, contributions and the net top-up, drawing on the Whole of Government Accounts).
• House of Commons Library, Public service pensions: the 2015 reforms (the Hutton review and the move to career average).

Fact-checked: 28 July 2026