UK faces further £1billion pensions black hole.
By Peter Dominiczak March 13th 2014.
Government departments are being asked to fill a £1 billion hole in the public sector pension system.
Taxpayers will be forced to cover a further £1 billion shortfall in public sector pensions, the Treasury has admitted.
Employer contribution rates will rise next year to make up for the predicted shortfall in pension schemes for teachers and employees of the NHS and the Civil Service, ministers said.
In instances where the most up-to-date valuations show that an insufficient amount of money has been paid into the schemes, government departments will be required to increase their contributions. The cash flow shortfall is the difference between pension contributions from public sector workers and the amount being paid out to those who have retired.
Danny Alexander, the Chief Secretary to the Treasury, said: “It is really
important that, as we deliver the best quality pensions we can for public sector
workers, that the contributions made by employees and employers fairly reflect the true costs of those pensions.”
A spokesman for the Treasury said: “The Government’s full package of long-term public service pension reforms, including raising retirement ages and increasing member contributions, are forecast to save almost £430 billion over the next five decades.
“These changes will help to put the long-term public finances back on a sustainable footing.
“As part of the reforms, it is necessary to establish exactly what the pension schemes cost.
“The Government is therefore in the final stages of conducting the most comprehensive valuation of the schemes ever, and assessing whether public service employers have made the proper level of contributions in the past.”
George Osborne, the Chancellor, last year announced that the state pension age would in future vary according to average life expectancy. The threshold will be set with the aim of ensuring that people spend no more than a third of their expected lifespan drawing a pension.
The policy was designed to make the state pension affordable as life expectancy rises.
Paying today’s pensioners currently costs taxpayers almost £100 billion a year.
The Treasury’s projected savings over the next 50 years will come from reduced pension payments and higher tax revenues as people work for longer.
The Institute of Economic Affairs (IEA) has warned of “crippling” tax rises and spending cuts if it is to meet the needs of an ageing population.
The IEA calculated the Government would need to slash spending by more than a quarter or impose significant tax increases because official calculations had failed to factor in future pension and health care liabilities.
“As populations age, tax bases will grow more slowly while government spending rises faster,” its report said.
The think tank said that Britain faced tax rises within just two years equivalent to more than 17 per cent of gross domestic product — more than £300 billion — in order to meet all future spending commitments.