Sir Humphrey's Legacy: An Update. UK Public Sector Unfunded Occupational Pensions. (web publication)

Author estimates government liabilities at £1,071 billion

In the 27th IEA Current Controversies Paper, Neil Record examines UK public sector unfunded occupational pensions.

Five important events have occurred since the IEA published ‘Sir Humphrey’s Legacy’ in September 2006:

• The Government has not published total public sector occupational pension liabilities for two years running – breaking a well-established convention.

• The Government has reduced the real (after inflation) discount rate it applies to value its unfunded pension liabilities from 2.8% p.a. to 1.8% p.a. from 31 March 2007.

• The Government has not increased the employer or employee contributions in 2007-08 to reflect the much higher current service cost that a 1.8% discount rate would require.

• The Government has explicitly chosen not to conform to the new International Employee Benefits accounting standards for the Public Sector (IPSAS 25).

• It has become clear that the Government uses two different discount rates in its pension calculations; one adheres to FRS17; the other is a fixed rate. This makes a material difference to the charging and recording of pensions costs.

This update analyses the impact of this new information, and makes recommendations.

2008, Current Controversies 27

See also:

Sir Humphrey's Legacy: Facing Up to the Cost of Public Sector Pensions