More on public sector pensions

Pensions New warnings were sounded this morning about public sector pensions. Following our report on the £53 billion hole in council pensions – which are funded – the National Audit Office (NAO) has produced an analysis of unfunded schemes. They look at the four biggest schemes: the civil service; the armed forces; the NHS; and the teacher’s scheme for England and Wales. In 2008-09, the taxpayer footed a net bill of £14.9 billion in pension payments in 2008-09, through employer contributions and directly from the Treasury. This is a real-terms increase of 33 percent since1999-2000.

Further, the Government Actuary’s Department suggest that pension payouts for these schemes will reach £79 billion in 2059 in today’s prices – triple the bill for next year. This is 1.7 percent of GDP (on the assumption of 2 percent productivity growth per annum), the same as today.

But this is based on a flawed supposition, according to the NAO. The Treasury have assumed that the size of the public sector workforce will remain constant, and therefore it will shrink as percentage of the total workforce, which is expected to grow 20 percent in the next 50 years. Edward Leigh, Chairman of the Public Accounts Committee, has called this a ‘heroic’ assumption. Given that the public sector workforce has ballooned with the spending splurge of the last decade then he may well be right.

All in all, it’s good to finally see some figures that will facilitate the debate for necessary reform from reports like ours and the NAO’s. But Treasury ministers must factor in the correct assumptions - particularly in the key variables like the size of the workforce - when making these projections, to give taxpayers a clearer picture of what the future holds.

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