Magazine article Public Finance

Pension Bill 'Understated by £15Bn'

Magazine article Public Finance

Pension Bill 'Understated by £15Bn'

Article excerpt

The cost of pensions for millions of public sector workers is more than twice the government s official figure of £15bn a year, an expert has claimed.

John Ralfe, a pensions consultant and a former head of corporate finance at Boots, warned that the public sector pension bill for 2008 alone would be around £30bn. Economists are now calling for the government to be more transparent about its cost estimates.

In a speech to the Centre for Financial Innovation on September 9, Ralfe noted that unfunded public sector schemes such as those for NHS staff, teachers and civil servants - had 7.5 million members. Another 4 million people are covered by the funded Local Government Pension Schemes.

After employee contributions, the total official public sector pension cost for 2008 is about £15bn on a £90bn pensionable payroll,' he said.

The discount rate used to calculate the cash cost of future pension payments was based on the Index-Linked Gilt rate, Ralfe explained, because the pensions were government-guaranteed and linked to inflation.

But Ralfe argued: 'The ILG rate used to calculate cash costs is not the market rate, but the much higher rate of 3.5%. . . This was fixed by the Treasury in 2001. …

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