Tuesday, December 16, 2008

Public Sector Pensions - Ticking Gets Louder

He never mentioned the cost of his pension

As BOM readers are well aware, Britain's £1 trillion plus unfunded public pensions liability is a huge ticking time bomb buried in the heart of our public finances. And every now and again the ticking gets alarmingly louder.

Today was one of those days. We heard from My Lord Mandy that as part of his Post Office privatisation plan, the taxpayer is to take full responsibility for the PO's £22bn pension fund liabilities - there being no way any private sector buyer/partner would ever take on such lunacy.

Now, the important thing to understand about the PO pension fund is just that - it is a fund. Unlike in most of the public sector, Post Office pension contributions have actually been invested in proper assets, such as equities. So in theory, the pensions can be paid by drawing down the assets, and there should be no future burden on taxpayers.

Yeah. If only.

In reality, as we've blogged before, the contributions have been insufficient to meet the liabilities, and there's a £7bn shortfall in the value of the assets. It's a shortfall we taxpayers will have to make up. Worse, although My Lord M didn't mention it this afternoon, that shortfall will have been increased bigtime by the recent financial market crash.

And it isn't just the Post Office. As we blogged here, its original stablemate - BT - was privatised a quarter century ago, yet we are still guaranteeing £28bn of its liabilities. The same guarantee also reportedly applies to the pension liabilities of around 20 other privatised companies, including the £15bn Railways Pension Scheme, the £10bn British Coal Staff Superannuation Scheme, and the £13bn Mineworkers’ Pension Scheme. All told, it must be North of £100bn.

The other piece of public pensions news today of course was the overpayment to tens of thousands of retired public employees. The error has supposedly cost taxpayers around £100m, but given that it's apparently been going on since the 70s, our guess is that the true cost is much higher.

The real worry is that with public pensions payments already running at over £20 bn pa and heading much higher, even apparently small errors can cost us a stack of money.

2 comments:

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