Taxpayer subsidy for public service pensions to double over 6 years

The crowned portcullis, symbol of the Parliame...

….queuing for the house of lords

This is an article from Michael Johnson. I agree with the numbers but I’m not so sure about the sentiment that lies behind it.

As a nation we can afford anything if we chose to prioritise the spending and we generate the growth to sustain our committment.

So there are two schools of thought..where are you?

Hidden in the Budget, the taxpayer subsidy of public service pensions is now forecast to more than double over six years

New figures identified from the 2013 Budget by Michael Johnson reveal the true scale of the public sector victory in pension negotiations.

In an article to be published on the Centre for Policy Studies website Friday (reproduced below), Johnson demonstrates that the 2013 Budget Red Book predicts that even after the implementation of the Hutton Report proposals, the Office for Budget Responsibility (OBR) now expects the cashflow shortfall between public service pensions’ contributions and pensions in payment to more thandouble, from an actual £8 bn in 2011/12 to £16.2 bn in 2017-18.

This year (2012-13), the shortfall is expected to be £10.5 bn, rising to £13.6 bn in 2015-16, 40% higher than previously expected by the OBR (see table, below).  Lord Hutton’s recommendations, made after the 2011 Budget, have failed to close this crucial gap.

Public service pensions: the OBR’s deteriorating forecasts

Johnson writes:

This is indicative of successive governments’ talent for underestimating the cost of providing public service pensions. Once (taxpayer-funded) employer contributions (over £16 billion last year) are added to the burgeoning cashflow shortfall, along with additional costs care of the Treasury’s 25 year “no change” pledge, the annual cost of providing public service pensions will be over £1,500 per household, by 2016, and rising rapidly.”

Tim Knox, Director of the Centre for Policy Studies comments:

“Public sector pensions will, at least partly as a result of the Coalition’s reforms, be growing to such an extent that they will soon represent a significant driver of the deficit. The 2013 Budget forecasts a Public Sector New Borrowing Requirement of £96bn for 2015-16 (excluding extraordinary items). At £13.6 bn, the pension cashflow shortfall will then be the equivalent to 14% of the PSNB. If the Coalition is to keep its promise made in the 2010 agreement – that ‘the deficit reduction programme takes precedence over any of the other measures in this agreement’ – then it urgently needs to re-open negotiations.”

For more details on the background to the interaction between the public sector pension reforms and the DWP proposals, see Michael Johnson’s recent CPS paper, A Toxic Tangle.

Any queries, please contact Michael Johnson at majohnson@talktalk.net or on 07896 127942

Public service pensions: Parliamentary Ping-Pong, anyone?

Just when you thought It could not get any worse…..…it has.

In 2011, the OBR started to forecast the cashflow shortfall between public service pensions’ contributions and pensions in payment. Six years ago this was an irrelevant £200 million, climbing to £8 billion last year. It has to be plugged by the Treasury, i.e. taxpayers.

The table, below, compares the OBR’s (pre-Hutton) 2011 forecast with that in the 2013 Budget Red Book[1], which assumes that Lord Hutton’s proposals, and subsequent amendments, are enacted. Consequently, one could reasonably assume that the shortfall would be forecast to reduce, not least because the Government has performed a great song and dance about how employee contributions will increase, by an average of 3.2% of pay (commencing in 2014).

Public service pensions: the OBR’s deteriorating forecasts

Clearly, the reality is very different. Two years on, the OBR now expects the burden on taxpayers to increase by a total of £13.4 billion, over the next four years, notwithstanding the reforms.  This is indicative of successive governments’ talent for underestimating the cost of providing public service pensions. Once (taxpayer-funded) employer contributions (over £16 billion last year) are added to the burgeoning cashflow shortfall, along with additional costs care of the Treasury’s 25 year “no change” pledge[2], the annual cost of providing public service pensions will be over £1,500 per household, by 2016, and rising rapidly.

Meanwhile, the House of Lords has made its final amendments to the Public Service Pensions Bill. In April it returns to the Commons for consideration of their Lordships’ amendments, the start of what is referred to as Parliamentary Ping-Pong. The rule is that before a Bill can receive the Royal Assent and become law, it must be passed in its final form by both the Commons and the Lords without changes. If one of the Houses makes any change or amendment to it, the other House has to agree to those changes, or make counter-changes of its own, in which case it returns to the other House. Let’s hope that the Commons can field a strong scrutiny team, acting in the best interests of all taxpayers. Unfortunately, given the ease with which the Bill initially skated through the Commons en-route to the Lords, the prospects are slim.

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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8 Responses to Taxpayer subsidy for public service pensions to double over 6 years

  1. Andrew thomas says:

    The true cost of public sector pensions is evident in the bank of England employer pension contribution of 56.3%. The BOE are a quango, but enjoy a funded scheme supposed to provide the same gold plated benefits as a public sector pension, and has also needed top-ups of sums like £26m
    p.a,. These huge payouts into their pension fund also avoids paying any trading surplus to the treasury – no different to corporation tax avoidance – and to enable them to award themselves huge lump sum payoffs despite having destroyed the value 0f the pound and the plebs savings and pensions.

    • henry tapper says:

      The Bank of England run an investment strategy based on investing in risk free assets, this accounts for some of the huge funding rate, the rest is down to the generous benefits and the longevity assumptions (central bankers don’t die- they just shrivel over time and have the half life of some atomic particles.

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