Daily Insurance Industry News
 
 
Daily Insurance Industry News
Wednesday 20th of March 2019
July 7, 2010

Public sector pensions worth twice as much

by Richard Kilner

Story link: Public sector pensions worth twice as much

The Public Sector Pensions Commission has published a new report which finds that the main unfunded public sector pension schemes are worth in excess of 40% of salary.

The report also suggests that reform has been delayed by lack of transparency regarding the true costs involved.

Unfunded liabilities are reported using artificially high discount rates, diminishing the true cost of public sector pension provision.

Employer and employee contribution rates are artificially set at 20%, but the actual cost is more than 40%.

The report also finds that whilst past accrual ought to be protected, reformation to the system should be applicable not just to new members but to current ones.

A number of recommendations have been made based on the report’s findings, including reformed defined benefit pension, a reduction of accrual rate to 1/80 (or a change to career average revalued earnings) and an increase in employee contribution rates.

Further possibilities include raising the age at which pensions are paid out from 60 to fit in line with the second state pension (rising to 68 in coming years).

The report also concludes that transparency is of vital importance, and that its recommendations would work with either a national or decentralised approach.

Last month Professor Philip Booth, Editorial and Programme Director at the Institute of Economic Affairs, called for urgent action to address the challenge posed by public sector pensions.

Professor Booth criticised the lack of transparency in this area, attributing it to antiquated government accounting conventions.

 

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