UK – The British government has underestimated unfunded public sector liabilities by more than 80%, according to research by Watson Wyatt.
The liabilities are closer to £1tn (€1.45bn) than the £530bn calculated in March 2005. This amounts to £40,000 per household in the UK, said the consultant.
"Pensions have become more expensive in recent years because people are living longer and the amount that can be expected to be earned on investments has gone down,” said senior Watson Wyatt consultant Stephen Yeo.
“Public sector pensions are backed by the government, so they are especially valuable.”
The March 2005 figure of accrued liabilities in all unfunded public sector pension schemes is “a significant underestimate”, said Yeo.
This is because it failed to take account of effect of falls in long-term interest rates in pushing up pension costs.
The impact of current interest rates, a year’s extra pension and improving longevity is to lift liabilities by more than 80% to £960bn, according to Watson Wyatt.
“The government is taking a rosy view of the cost of public sector pensions, ” said Yeo. “If the private sector was allowed to use public sector methods to value their own pension liabilities, the £78bn deficit for the companies in the FTSE 350 index would be completely wiped out.”
A treasury spokesperson told IPE the government is taking a “realistic view” on pensions, and that the accounts have been independently audited.
“What matters are the actual public sector pension payments by government which as a percentage of GDP are exactly the same as set out a year ago.
“In estimating the total accrued liability of unfunded public service pensions the government follows guidance approved by the Financial Reporting Advisory Board,” he said.
A figure for the total liabilities reported in accounts as at March 2006 will be made available when the accounts have been audited and published, said the Treasury Department. No date was given.