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| The
first choice for people
in pensions |
| Government
in danger of creating pensions apartheid
By Sophie Baker |
| UK
government has allowed public sector pension liabilities to run “out
of control”, claims Policy Exchange. A report by the independent educational charity has lead to Policy Exchange labelling public sector pension schemes “the Second National Debt”, with estimates that, taken into account with national debt, this amounts to £1.854trn, or 150 per cent of GDP. Public Sector Pensions: The UK’s Second National Debt, shows that using the Government’s own calculations, the accumulated liability of unfunded public sector pension schemes is actually greater than national debt, at £1.1trn, or 78 per cent of GDP. The report also claims that the Treasury has been subsidising pensions promises, meaning someone who has been in the public sector for their whole career can now leave with a higher pension than the average they received when working. “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,” commented Neil Record, author of the report and pensions expert. “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.” Record acknowledged the Bank of England’s efforts to make its schemes 100 per cent funded, but says if the Government were to make the same moves the changes would come at a cost. However, he believes it is vital that transparency is brought to the cost of these schemes. The report recommends that public sector employers that make pension provision for their staff pay a cash amount every year that is equivalent to the full market value of the pension benefits accrued by staff in that year. Annual cash pension contributions should be used to purchase index-linked gilts to fully pay for pension promises made in that year, and a new body should be established to receive contributions, buy index-linked gilts and pay public sector pensions. Two other recommendations, to ring-fence existing public sector pension liabilities and to begin new arrangements after a transition period, were made in the report. The report was supported by Pension Corporation. - Pensions Age June 2009
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