Public sector pensions scandal not addressed by White Paper

Article in the Yorkshire Post by IEA Editorial and Programme Director Philip Booth

In an article in the
Yorkshire Post Philip Booth attacks government inaction on public sector pensions:

In this week’s Pensions White Paper the Government ignored the real scandal in the pensions sector – the hidden burden of public sector pension liabilities. Public sector workers are being promised gold plated pensions whilst workers in the private sector, who will ultimately face whopping tax increases to finance public sector pensions, struggle to make sufficient provision for themselves. Of course, the most expensive public sector scheme of all is the one which Members of Parliament join.

The best private sector pension schemes – those that pay pensions related to employees’ salary at retirement - have fallen like nine pins in recent years. Over two thirds are now closed to new entrants. The rest will probably close in the next five years. Yet public sector final salary pension schemes remain open and unreformed and have ludicrously low retirement ages. Furthermore, the government refuses to reveal their full cost. In the national accounts, only the £18billion cost of actually paying pensions is revealed. When pushed, the Government is willing to admit that the value of all the pensions it has promised so far to public sector workers is about £500billion. However, even this massively understates the real cost. In calculations undertaken by Neil Record for the Institute of Economic Affairs, the true cost is estimated at over £1trillion in current value terms. In other words, if the government had put aside investment funds to meet the cost of the pensions for public sector workers, as and when it made its promises, it would need a fund of £1trillion.

Put in context, this hidden debt is well over twice the official national debt. It is a genuine liability for future generations of taxpayers who will have to foot the bill. Such a burden may seem too big to ignore, yet unlike private sector employers the Government can ignore their own pension deficit because the payment of pensions will not hit a peak until 2045. By then today’s politicians will be “respected elder statesman” in the House of Lords – or possibly in a higher place – and they will not be called to account for their