Government estimates of the cost of public sector pensions are far too optimistic because they do not take proper account of trends in mortality claims a new study from the Institute of Economic Affairs (IEA).
The IEA says a realistic estimate of public sector pensions liabilities is actually £817bn, twice the current government estimates of the public sector pension nburden.
The Report Sir Humphrey’s Legacy: the true cost of public sector pensions, compiled by Neil Record, chairman and chief executive of Record Currency Management and a former economist at the Bank of England, claims a realistic estimate of the unfunded public sector occupational pensions liability at £817bn, amounts to 69.4% of Britain’s gross domestic production (GDP), and is £357bn higher than the last government estimate of £460bn, made in March 2004.
For the unfunded public sector, Record also claims the government has put into place a “series of ‘non-market’ assumptions which distort the cost calculation” instead of relying on accurate calculations of the real costs of pensions.
The report suggests that if the government continues to make unrealistic assumptions, reality will eventually catch up leading to bigger increases in the government’s own figures for the future public sector pensions liability.
Record also looks at the average annual cost of public sector pension benefits as a proportion of employee’s salaries. These ‘real’ costs range from 31.8% of salary for male teachers, to 85% for female police officers. Moreover these ‘real’ costs are much higher than the current employee and employer pension contributions, in the case of a male teacher this is an increase of 12.3%.
Record says: “Only when the true cost of public sector pensions is made transparent can we have a serious discussion about policy alternatives.”
Meanwhile, Philip Booth, editorial director at the IEA says: “The research is detailed and shows clearly how the numbers are arrived at and reconciles them with the much lower government figure for the debt burden. Policymakers must address this problem.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected].IFAonline
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