Civil servant pay could be reformed to improve staff retention. (Image: Getty)
To boost staff retention, millions of teachers, nurses, and public sector workers could be given higher salaries in exchange for lower pensions.
Civil servants could be given thousands more in their pay packets for a reduction in their pensions.
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Officials believe this could help people trying to buy their first homes or start a family.
Union chiefs are said to be split over the idea, with some branding the move “dangerous”.
Public sector pensions are often much more generous than those in the private sector.
Nurses and doctors could be be amongst those to see their salaries increased. (Image: Getty)
However, Cabinet Office permanent secretary Cat Little has said that she is reviewing "the balance between pay and pensions" and has begun discussions within Whitehall about offering staff more flexibility.
The Treasury is yet to be consulted about the mooted idea but could be concerned about a huge spike in borrowing.
Lord O'Donnell, the former cabinet secretary, described the move as a "win-win" reform that could save the government money.
He said: "If you increase a civil servant's pay by ￡1,000 you could reduce the net present value of their pension by more than ￡1,000, which makes debt more sustainable but would also be a trade-off that makes sense to the civil servant because having that money upfront will mean a bank gives them a mortgage.
"It's just this quirk of our accounting that stops it."
Mr O’Donnell argued Rachel Reeves “will understand that this is making the public finances more sustainable” and is very much in the spirit of the changes to the fiscal rules.
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Former Pensions Minister Sir Steve Webb warned Chancellor Rachel Reeves would simply bring costs forward.
He said: “Because there is no money set aside now for the pensions of teachers, NHS workers or civil servants, any saving in pension costs would not happen until today's workers retired, whereas the extra cost of higher wages would happen immediately.
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"In general, governments prefer to push costs into the future rather than bring them forward, meaning this idea may not appeal to the Treasury."
A recent analysis found that nearly ￡1 in every ￡4 raised in council tax is now being spent on staff pensions by local authorities.
A Government spokesman said: “We are focused on supporting the civil service with the necessary tools it needs to deliver change for working people.”