Public sector pensions: the UK’s second national debt
- Document type
- Neil Record; James Mackenzie Smith
- Policy Exchange
- Date of publication
- 4 June 2009
- Poverty Alleviation Welfare Benefits and Financial Inclusion, Employment
- Social welfare
- Material type
Download (642KB )
The accumulated liability for public sector pensions is now estimated to be greater than the national debt. This report looks at the looming bill for these unfunded pensions, and their real value to state employees. When the government receives contributions from public sector employees and employers for pension schemes, it spends the money immediately rather than investing it for the future - hence the fact they are known as “unfunded” schemes. However, successive governments have promised public sector workers defined benefit pensions, often worth two thirds of final salary, while failing to accurately calculate their accruing liabilities. After complex analysis, the report concludes that present arrangements are thoroughly unsatisfactory for the following reasons:
- They benefit a small proportion (about 20%) of the working population and hugely benefit an even smaller proportion, largely at the expense of everyone else.
- They are particularly valuable to “no break” careers in the public sector (mostly men), as well as to high fliers.
- On average, they penalise women, who typically take career breaks and experience slower career progression, and anyone who moves from the public to the private sectors and vice versa.
- They are much more generous than almost all pensions available in the private sector, to an extent not fully understood by the public, or by Parliament.
The report concludes with recommendations for improving the transparency of government pension liability and a proposed policy framework within which public sector employers, employees and their unions can negotiate decisions about the shape of future pension schemes.
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