There are two documents sitting on my desktop this morning. The first is a paper by Con Keating. Con believes that the best way of providing pensions is collectively through large organisations who are able to offer and keep future promises and fund for them through the revenues they generate.

Con’s paper, “Keep a lid on it” will be “given an outing” at Zyen’s offices (90 Basinghall st) on the morning of 14th Feb – it is 08.00 for an 08.30-10.00 and involves a presentation and discussion – Coffee and croissants and free, but registration is recommended  by mailing … longfinanceevents@zyen.com

I won’t precis the paper;- I would incur Con’s wrath in doing so. Suffice it to say, it depends on a purity of thinking and a clarity of articulation that are beyond me. That should not stop you making a bee-line for the event.

The future of defined benefit promises depends on the free-thinking of those who can properly grasp the economical use of money over time. Con is a representative of the few that can.

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The other document on my desktop has arrived from Michael Johnson. Michael’s pre-occupation is with the advancement of individual engagement with financial matters. He is not a collectivist (though he supports supertrusts) , he strongly believes that good behaviours are influenced by tax incentives, he deplores the use of public money to provide retirement wealth for those in the public sector (to the detriment of those in the private sector).

Michael’s current bug-bear is that the future cost to the taxpayer of public service pensions could be as much as £41 billion a year (the equivalent to £1,600 a year for every household in the UK). This is comprised of:
• at least £17 billion in employer contributions;
• at least £15 billion to cover the cashflow shortfall between pensions in payment and pension contributions as currently identified by the Office for Budget Responsibility (OBR); and
• at least £9 billion in additional costs

These numbers are identified by Michael in a paper published today(Monday 4 February) by the Centre for Policy Studies.
Michael claims the £9 billion of additional costs has primarily arisen because of the interaction – or “toxic tangle” – between two pension proposals currently before Parliament: the Public Service Pensions Bill and the DWP White Paper on the single-tier pension. Together these have created two additional costs:
• about £3.4 billion a year due to the loss of the public sector employers’ NICs rebate following the end of contracting-out; and
• about £4 billion a year as a result of public sector employees continuing to enjoy an enhanced occupational pension, as if still contracted-out, whilst being entitled to further accrual within the new single-tier state pension, once it appears. In contrast, private sector employers who are today contracted-out will be permitted to change their scheme rules (and reduce the pensions paid) without trustee consent (not least to enable them to recoup their lost NICs rebates).
A further £2 billion a year in additional cost may well arise because Lord Hutton’s modelling used life expectancy rates that are now six years out of date.

Con and Michael look at pension liabilities through two lens’. For Con. the liabilities present a challenge that can be surmounted by enthusiastic pedagogy. For Michael , pension liabilities are a threat to the wealth of the nation.

Both Con and Michael are heavyweight thinkers who polarize opinions. I respect them both though I suspect neither will respect me for that!

If we are to have a proper policy debate about the future of our corporate and public pension liabilities, these two men will set its terms and define its polarities.

If anyone would like a copy of Con’s paper, please mail me at henry.tapper@firstactuarial.co.uk. Michael’s paper is on the link

Related articles

• Public sector pensions could ‘cost up to £1,600 a year per household’, says think-tank (telegraph.co.uk)
• Taxpayer faces £41billion a year bill for bloated pensions of public sector workers (dailymail.co.uk)
• Families will have to pay £1,600 a year to fund public sector pensions as cost rockets to ‘unsustainable’ level (dailymail.co.uk)
• The Regulator’s right to be cautious about mastertrusts (henrytapper.com)
• Pension cuts for private sector, but public sector is spared (telegraph.co.uk)
• Flat-rate pensions plan revealed (bbc.co.uk)