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UK public pension liabilities estimated at E862bn

UK – Consulting firm Watson Wyatt has estimated the UK’s unfunded public sector pension liabilities are around 580 billion pounds (862 billion euros).

The firm, which withdrew from providing actuarial consulting to UK local authorities last year, said this compares with the most recent official estimate, of 380 billion pounds, in 2002.

Watson said it based the new estimate based on changes in the way liabilities are calculated which bring them more in line with the private sector FRS17 standard. Other factors were the further accrual of benefits as well as improvements in mortality.

It said these factors “have significantly increased the present value of unfunded pension liabilities in the public sector over the past two years”.

"The pressure that has forced the private sector to account for pension costs in a transparent way is only slowly having an effect in the public sector,” said senior consultant Stephen Yeo in a statement. He recently joined the firm from the opposition Conservative party, where he was a pensions adviser.

“Given the enormous size of the liabilities involved, it is vital that the true cost of all pensions is recognised."

Yeo said in an interview that he had based his calculations on a more appropriate discount rate for the state-backed pension liabilities, 2.2% - compared to the prior 3.5%.

He said the Government Actuary’s Department has hinted that a 2.2% rate could be appropriate, though from 2005-6 the liabilities in the government’s accounts would be calculated using a discount rate of 2.8%.

He said the government was trying to do the right thing, but added: “The whole thing is not very transparent, it’s quite hard to get the figures.”

He said the issue could conceivably have a longer-term impact on areas such as the UK’s sovereign credit rating and whether it met the criteria for joining the euro.

The relevant Treasury department spokesman was not immediately available for comment.

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