In a new study*, published today by the IEA, Neil Record**, the leading expert on public sector pension deficits, puts the burden of future public sector pensions at £1.025 trillion this estimate is nearly twice as great as the governments own estimates and approximately equal to one years national income. Neil Record argues that government estimates do not take proper account of trends in mortality, likely public sector pay increases and market interest rates.
Each year, the government makes new pension commitments to public sector workers worth over £40billion.
The recent very high level of public sector pay increases has led to a significant rise in the pension debt burden. Neil Record comments, When the government increases nurses pay by, say, 10%, that increases the whole of the value of the past pension liabilities the government has accumulated in respect of current workers by 10%.
The pension liabilities that the government has accumulated are just like other forms of national debt, argues Neil Record. The government must honour those commitments and they will represent a huge burden on future generations of taxpayers. The cost of meeting the public sector pension commitments already made will peak at £90billion per annum in 2045. Commenting on the study, Philip Booth, Editorial Director at the IEA, said, People who are currently too young to vote will bear the greatest costs. This is not a legacy one generation of politicians should leave their children. It is a scandal that the government has only made minor proposals regarding public sector schemes. At the same time, increased regulations and the imposition of accounting standards on the private sector are driving out private sector final salary pensions.
When calculated correctly, the cost of providing pensions for public sector workers varies from 35% of salary for male teachers to 72% of salary for policewomen. Public sector employers such as local education authorities, police authorities and so on are charged much less than this.
Governance in public sector schemes is als