Public service pension schemes will cost an extra £3bn a year, according to financial services giant KPMG.

The prediction comes as an all-encompassing cost review of public service pension schemes begins.

Public service pension schemes only start their cost review on the same day once every 12 years, which means the actuarial evaluation, which was effective on the 31 March 2016, will provide a rare complete picture of the cost.

The full findings won't be available for two years but KPMG has predicted a significant rise in cost across all schemes to the tune of GBP 3bn.

Steve Simkins, a partner in public sector pensions at KPMG, said schemes must continue to offer good value.

"While public sector employers will be required to inject an extra GBP 3bn of cash each year, the benefits members receive and the contributions they pay are not expected to change," he said.

"This presses home the need to ensure that these schemes are offering excellent value to their members.

Since the new public service pension schemes were introduced, private sector pensions have seen a step change towards maximum flexibility and choice, but more than five million public servants are locked into more rigid arrangements which, Simkins says, might not fit their individual needs.

"The new single state pension and the resulting increase in national insurance costs for employers from next Wednesday means that there will soon be very few active members of defined benefit schemes outside of the public service pension schemes."

"The UK pension system will move to one which could be billed as "flexible defined contribution versus inflexible public service" and we expect the pressure will increase for this gulf to be reduced over the coming years."

He added: "While cost will always be a priority, I hope this review won't just focus on that, but will also look at design and how combining the two could lead to a better outcome for everyone - put simply, a more modern, flexible system could offer more value at less cost."

First published 07.04.2016

Lindsay.sharman@wilmingtonplc.com