How public-sector pension schemes are funded | Letters

Prof John H Arnold and Douglas Russell respond to a letter that said defined-benefit pensions place enormous pressure on public finances

Prof Stephen Caddick’s letter (26 May) on public sector defined-benefit (DB) pension schemes requires a response. There are five large “unfunded” schemes: NHS, teachers, civil servants, police and army. It is true that employers, and thus ultimately taxpayers, put in a fairly high employer contribution. But without a decent pension scheme, such sectors are likely to require higher levels of pay to recruit and retain staff, the cost of which would also fall on taxpayers.

The £1tn in liabilities for public DB schemes that Prof Caddick mentions is misleading, as is usually the case with any assessment of pension liabilities outside the private sector. This figure (in fact probably £1.3tn) estimates the money that the government would have to pay out to cover pensions were there no income coming from workers and employers to support them – that is, in the unlikely scenario that we suddenly ceased to have any NHS workers, teachers, soldiers and so forth, but only those in receipt of a pension in those areas.