Stephanie explains the public sector pension problem

Stephanie Flanders, the BBC’s economics editor, has that rare skill to convey complex argument in a simple way.

So it is with her blog post – The public-sector pension gap. I’ve only had the chance to skim read the contents of the Public Sector Pension Commission’s report. So it’s thanks to Stephanie’s article that the dilemma of public sector pension funding is presented clearly.

It’s this. While interest rates are low, and asset prices depressed, the amount needed to be put into a pension scheme needs to be increased to meet the expected pension at retirement.

The public sector’s pension pot, which in this case as Stephanie rightly points out doesn’t include local government, is unfunded and is drawn from the taxes collected. The government experiences the same asset prices and interest rates as the private sector. It’s just that the hole in public sector pensions can only be met by taking an increasing amount of the total amount of tax collected.

That’s the crisis. So it’s right to question the affordability of paying, for example, senior police officers, who on retiring at 49, claim an annual pension of variously £80k, or £110k.

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