A new study published today by the IEA puts the burden of future public sector pensions at £817bn. This estimate is much greater than Britains current national debt and is equal to nearly 70% of one years national income.
The author, Neil Record forecasts that the Governments own estimates for the pension liabilities will increase to £510bn later this year, but that these estimates will be far too optimistic because they do not take proper account of trends in mortality, likely future public sector pay increases and market interest rates. The author demonstrates how his estimates can be reconciled with the Governments estimates and shows how, if the Government continues to make unrealistic assumptions, reality will catch up leading to bigger increases in the governments own figures for the public sector pensions liability in coming years.
The author also calculates the average annual cost of public sector pension benefits as a proportion of employees salaries. These costs range from 32% (for male teachers) to 85% (for female police officers). These are much higher than current employee and employer contributions. Neil Record comments, Only when the true cost of public sector pensions is made transparent can we have a serious discussion about policy alternatives. Trade unions need to know how valuable their pension schemes are. Perhaps their members would prefer much higher levels of basic pay and a different form of pension arrangement.
Philip Booth, Editorial Director at the Institute of Economic Affairs, and also an actuary, commented, Employees should know that such a large proportion of their pay package is being spent on their pension provision at the same as young teachers and nurses are struggling to buy their first house. The research is detailed and shows clearly how the numbers are arrived at and reconciles them with the much lower Government figure for the debt burden. Policymakers must address this problem.