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Attack on public sector pensions

Public sector pension funds have been slammed after a National Audit Office report revealed errors in a water industry scheme which could cost the taxpayer £300m.

The scandal is another slap in the face for the pension industry in the same week as the Financial Services Authority revealed that the pension misselling review could cost an extra £6.5bn.

It also comes in the wake of growing concern that pub lic sector schemes, such as police and local council schemes, are costing the taxpayer millions of pounds through early retirements.

The new scandal focuses on one of three funds set up by the former Conservative Government as part of the privatisation of the water industry. Under the privatisation, the Water Authorities Superannuation Fund was split into new pension schemes set up by the new privatised companies.

Former National Rivers Authority employees received £221m in two funds and over £812m went to the remaining 39,000 water authority employees in a closed fund.

But this fund has been shown to have a deficit of £400m. The taxpayer is likely to have to pay about £300m to meet the guarantees promised to scheme members.

In a report to Parliament, auditor general John Bourn warns that the 150 public sector funds must learn lessons from the scandal.

Bourn urges the Government to clear up the mess. But he says the Government should "minimise the extent to which the taxpayer will have to fund any deficit".

Scottish Life marketing manager Alasdair Buchanan says: "There was always scope for this kind of thing, particularly with privatisations. In many of the schemes, there are too many people retiring early. It is the taxpayer who is footing the bill."

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