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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.

     


    [1] 2013 Budget Red Book, page 103; Table B.4: Total Managed Expenditure: OBR forecast.

    [2] As detailed in A Toxic Tangle; Michael Johnson, CPS, February 2013.  

    Michael trained with JP Morgan in New York and, after 21 years in investment banking, joined Towers Watson, the actuarial consultants. Subsequently he was responsible for the running of David Cameron’s Economic Competitiveness Policy Group.

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    Comments

    Stephen George Marston - About 2418 days ago

    Pensions are a long term matter, yet Mr Johnson constantly focuses on the short term. The fact that the shortfall between payments into pensions schemes via contributions and payments out via pensions has grown at a time when public sector jobs have been cut and pay frozen - meaning both that contributions have not risen and that many workers have retired earlier than planned - is ignored. There are two other "solutions" open to the Government. Abandon its austerity course and allow low paid public sector workers a pay rise - some of which they will pay into their pension schemes and the rest of which they will take straight to their local food and clothing shops. Or continue on the present course and reduce the UK's credit rating to that of Greece, at which point the cost of borrowing will increase so much that, paradoxically, the basis for calculating the long term cost of public sector pensions is such that they will suddenly seem much cheaper. On the whole, I would prefer that we stick with the current strategy as per the much maligned (by Mr Johnson) Public Sector Pensions Bill.

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