Neil Record's argument is that:
Official estimates of public sector pension liabilities do not use sound accounting or actuarial methodology and, as such, they woefully underestimate the true liabilities that taxpayers owe to public sector workers in the form of future pensions.Shockingly, Mr Record thinks that the real liability is £1,025 billion - £1,025,000,000,000 in real money. The government says that the liability is only (!) £530 billion.
This means that the employer's contribution to public sector pensions represents a far larger addition to the basic payroll cost than we would have expected:
When calculated correctly, the cost of pensions in the public sector varies from 35 per cent of salary for male teachers to 72 per cent of salary for policewomen.In the book's commentary, Nick Silver, an actuary, thinks that even Mr Record has underestimated the costs when we make certain adjustments to do with tax rates. If you are a standard rate taxpayer, a typical civil servant's pension contribution is costing you 47.9 percent on top of the basic salary cost of your "servant". (36 percent using Mr Record's method.)
Mr Silver gives these figures for 2005:
Public Sector pensionsThe private sector is almost 60% "funded"; the public sector is unfunded.
Liabilities £1,025 billion
Members (in millions) 6.7
Private Sector pensions
Assets £630 billion
Members (in millions) 14.9
The new FRS17 accounting standard now makes companies incorporate pension fund assets and liabilities into their balance sheets. That's why British Airways has been described as a dodgy pension scheme that also flies a few jets. Actually, it's now a dodgy Christophobic pension scheme that also flies a few jets! To be fair, this isn't entirely the fault of BA or of other companies with huge pension deficits. A big chunk of the problem is Gordon Brown's tax raid on pension funds made as soon as Labour came into office in 1997. Reversing that would fix most of the problem for the private sector.
But Gordon needs all that cash to pay for the massive public sector benefits. Look at Mr Silver's chart again. Divide £1,025 billion by 6.7 million. The average pension liability per "public" worker is £152,915. In the private sector it's £71,812. The public sector pension costs are so much higher because the benefits far exceed those typically found in the private sector.
Does any of this matter - apart from the damned unfairness of the whole thing? After all, the government can just pay future pensions at the time out of current taxation. I think it does matter. An aging population implies extraordinarily high levels of taxation in the future. We should be treated like adults and be told the true size of the liabilities that are being incurred. The private sector must disclose almost everything. Why won't the government?