Unfunded pension promises made to past and present UK public sector workers now amount to almost £1.2 trillion.
The latest official estimate of unfunded public sector pension liabilities to be published by the government is £770 billion at 31 March 2008. However, Towers Watson estimates that applying the same method in March 2010 would produce a pension liability of £993bn.
Including these liabilities would more than double the new estimate of the national debt to be revealed by Chancellor Alastair Darling in tomorrow’s (24 March) Budget, according to consultancy Towers Watson.
John Ball, head of defined benefit pension consulting at Towers Watson, said: “The government has been borrowing off its own employees by promising them pensions in the future in return for work carried out in the past. Members of public sector pension schemes have a bigger claim on future taxpayers than the investors holding government bonds do.”
Because public sector pension commitments are backed by the taxpayer and replace the extra borrowing which would be needed if public sector workers received bigger salaries instead, there is a strong argument for calculating liabilities with reference to government borrowing costs rather than companies’ borrowing costs. This would increase the liabilities to £1,176bn.
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