Nonsense about public sector pensions
The British North-American Committee sounds a solid enough organisation and its document “The need for transparency in public sector pensions” sounds staid, even dull. Yet The Guardian headlined the report “Cost of Public Sector Pensions equal to 85 per cent of GDP, thinktank warns.” This is spin on a scale worthy of the late Joseph Stalin.
The figure is based on an assessment of the total net liabilities of UK public pensions put at $1,267 billion dollars. It then compares this with Britain ’s current GDP to come up with – hey presto! - the 85 per cent figure.
The innocent might think that this means 85 per cent of our GDP in future is going to go to support those getting public sector pensions, leaving just 15 per cenr for the rest of us. This is plain rubbish (as Polly Toynbee briefly pointed out in a subsequent Guardian article).
The liability to pay public sector pensions is stretched over many, many years – from now until the last existing public sector employees dies. It is a statistical howler that would make an “O” level student blush to compare this with the figure for GDP for a single year. To make matters worse, we can safely expect GDP to increase over the years to come (if it does not neither will pensions, reducing the actual liability). So the proportion of present GDP represented by the liabilities is even less relevant. What matters if anything is the proportion of future GDP that they represent.
Such nonsense does nothing to forward the important debate on the affordability of public sector final salary pension schemes.
Anonymous (not verified) wrote,
Sun, 23/08/2009 - 16:27
A Labour peer. Fancy that!
I think most people are concerned about the fact that the seemingly unstoppable desire for hiring public sector workers, often on salaries/benefits that no private sector pension would pay (contrary to the reasons given for such generosity), is creating a liability which is only going in one direction, up.
Simply suggesting that debts dont matter because we can spread the repayments out over a term of our choosing is not an acceptable manner with which to deal with a very serious problem.
Nick (not verified) wrote,
Mon, 14/12/2009 - 18:10
Complete twaddle and you know it.
The figure is correct. It is the amount of money that would be needed to get out of the contract.
It's pretty close to 1.15 trillion sterling, and that may well assume that there is cash invested. They will use a discount rate that isn't justified.
What's also important is that the government is flouting international accounting standards by not including the contract obligations in their accounts. [That other's get away with it is a very strange defence of the indefencible]
What's also interesting is that you fail completely to come up with any figure. Blank. Conclusion you are trying to shoot the messenger.
Of course paid over many years. It's a debt. It's a contractual obligation. Just like a mortgage is. The size of the mortgage is 1.15 trillion sterling. You're going to pay much more than that, because of inflation (RPI) and wage inflation (higher). The payout relates to both. That's what makes it so expensive.
Really poor maths on your side. Very poor. Have you not heard of present values? Not heard about discounting?
Nick
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