re UK gov pension black hole
Whitehall faces huge pensions black hole
By Tessa Thorniley (Filed: 30/12/2003)
The Government is facing a £470billion public sector pensions liability, dwarfing the pensions "black hole" in the private sector and potentially costing taxpayers £21billion a year, according to a former Bank of England economist.
Neil Record, now an investment manager, said the "massive liability" should apppear on the public balance sheet as the Government has committed the money to its employees, largely through final salary pension schemes.
Mounting pension liabilities in the private sector have attracted severe criticism, not least from MPs, in recent years. The gap between the value of assets set aside to meet employees' pensions and the cost of these pensions in today's money now stands at about £100billion.
Employers in the UK have tucked aside about £800billion to meet pension costs, figures from the Office for National Statistics show, and Mr Record said: "The Government should come clean and recognise the scale and importance of its own problem".
According to the Government Actuary's Department, underfunding in the NHS, civil service and other public service pension schemes, reached £380 billion in the year to March 2002, calculated at "present value" - the value of the funds in today's money.
This discounts future returns and interest rates. However, Mr Record claims the true figure is almost £100billion higher if it is not distorted by "arbitrary" actuarial assumptions.
He said: "High discount rates reduce the present value, so the rate the Government uses is critical. It seems the Government is using a real - after inflation - discount rate of 3.5pc to value its pension liabilities, based on the expected yield of long-term gilts. But the market values long-term gilts (on index linked gilts) at around 2pc, or even lower for short-term rates."
Opposition MPs calling for the Government to value its pension liability at the 2pc "market rate", were told a revaluation is too costly. But, Mr Record said, based on a rough calculation, including some reasonable assumptions about the age mix in public service employed, the £380billion, discounted at 3.5pc becomes £470billion, if discounted at the lower rate.
"The liability is enormous. It is larger than the National Debt of £435billion at the end of past year and almost five times as big as the black hole in the private sector," he said.
Furthermore, the debt is set to rise, as employers live longer and public sector employment rises. One in four workers are already employed by the public sector.
Mr Record called for an end to the excessive generosity of these schemes, "which create an elite class of pensioner who is immune to the economic climate, at the expense of the working population". |
