Harry Wilson report in The Times 21st September 2015: Treasury warned of £1.7 trillion ‘hole’ in public sector pensions Unfunded and unreal public sector pensions includes NHS staff. I wonder if those who have already taken their pensions will be subject to reviews..
Britain faces burden of unfunded public sector retirement costs that have left taxpayers with a liability set to exceed the nation’s annual economic output
Britain faces an “enormous burden” of unfunded public sector retirement costs that have left taxpayers with a liability set to exceed the nation’s annual economic output, according to the pensions tsar hired by Boris Johnson to advise on tackling the crisis.
Edi Truell, a millionaire City financier, warned that the thousands of defined-benefit pension schemes that guarantee public sector workers an income had left the government with a shortfall of £1.7 trillion.
In a report to the Treasury yesterday, Mr Truell said that the liabilities of the NHS pension scheme alone were close to topping £500 billion, based on his calculations, or more than £150 billion greater than official figures suggest.
While official figures put total liabilities at £1.2 trillion, Mr Truell believes the real figure is at least £500 billion higher as a result of rapidly increasing life expectancy and the impact of quantitative easing programmes that have raised the cost of guaranteed income retirement schemes.
“The financial repression effect of QE on bond yields has made the value of a guaranteed annuity income a multiple of expectations at the outset. This has increased an already toxic legacy to gargantuan proportions,” he said.
Most public sector pension schemes are unfunded, meaning that they are paid out of present government revenues rather than from income generated by pension pots, leading Mr Truell to warn that action is required to address the growing cost to the taxpayer.
He urged the chancellor to make reforms, including closing defined-benefit schemes, forcing departments to contribute more to staff pension pots and to consolidate thousands of individual funds to cut administration costs.
“This enormous burden is looming over council and general taxpayers, a nettle that few have grasped. For the UK public sector as a whole, an increase in annual employer pension contributions of at least £50 billion per annum is required,” Mr Truell said.
Frank Field, the chairman of the work and pensions committee, said that Mr Truell was “barking up the right tree” and that the government would have to sort out public sector pensions. “At the moment, there are large subsidies and I don’t think you can ask private sector workers to fund your pensions ad infinitum,” he said.
In his Treasury report, Mr Truell pointed out that most private company had closed defined-benefit schemes to new entrants as they recognised the programmes were unaffordable.
Mr Field agreed that radical thinking was needed and suggested that public servants be offered a choice between continued guaranteed pensions with a lower income, or schemes offering them the chance to pay in more in return for a bigger retirement income.