The Policy Exchange has calculated that the total liability
of unfunded public sector pension schemes could be £1.1
Public Sector Pensions: The UK’s Second National
Debt reveals that:
• Using the Government’s own calculations,
the accumulated liability of unfunded public sector pensions
schemes is estimated to be greater than the national debt.
If proper financial methods are applied, the true figure
is vast - £1.1 trillion, or equivalent to 78% of GDP
• The cost of servicing the debt each year to pay
for these unfunded schemes in now £45.2 billion
Even on the Government’s own figures, in 2005-6, the
interest paid on the unfunded liabilities
exceeded the interest paid on the National Debt for the
• The Government has been using financially indefensible
methods to work out its liabilities and how much workers
need to contribute to the schemes.
• The Treasury has been subsidising pensions promises.
The result is that someone who has been in the public sector
for their whole career can now leave with a pension higher
than the average they received when working. Neither the
Treasury nor Parliament explicitly recognise they are paying
this subsidy, which accounts in part for the rapid growth
in liabilities. When added to the known subsidy, this means
each of the five million employees in unfunded schemes receives
a pension payment of £5,700 per year
• Younger workers and those on lower salaries are
subsidising older workers and high fliers
Neil Record, author of the report, said: “The Government
has allowed public sector pension liabilities to run out
of control, with the Treasury spending contributions received
for the next generation’s pensions to the pay the
current generation of pensioners.
"The Government’s accounting for these pensions
has been arbitrary and opaque, making it all but impossible
to understand. Public sector workers deserve security in
retirement. But the worry is that in denying the extraordinary
generosity of the current schemes, the Government is creating
an apartheid, when compared to those of the private sector.
This could lead to high quality public pensions being completely
abandoned - I want to avoid that.
"The Bank of England has already moved to make its
schemes 100% funded. If the Government were to do the same,
the changes would be costly – but the reality is this
isn’t money that would otherwise have been saved,
and we urgently need to bring transparency to the cost of
Liberal Democrat shadow work and pensions Secretary, Steve
Webb, added: "We need an urgent independent review
of public sector pensions. The system needs to be fair for
both public sector workers and taxpayers, many of whom can't
afford to save for their own retirement.
"The review must look at pay levels in the public
and private sector, relative levels of job security, contribution
rates and retirement ages. Top earners in the public sector
can build huge pensions quickly and retire early and this
"The Government must be much more transparent about
what is happening to public sector pensions and enter into
an honest debate about what a fair and value-for-money system
would look like."