On the go: Changes to mortality assumptions have played their part in pushing the net public sector pension liability up by 15.6 per cent between the 2018-19 and 2019-20 periods, reaching almost £2.2tn.
The net public sector pension represents 44 per cent of the government’s total liabilities and is the largest liability in the government’s accounts, which were released on June 6. It does not include the state pension.
The liability increased by £295.6bn in 2019-20 from £1.89tn. This was driven by a £220.6bn net revaluation loss, £66.6bn in current service costs, and £53.9bn in net interest payments.
The government said the revaluation loss was largely driven by a change to mortality improvement assumptions. Changing the rate to minus 0.5 per cent for 2019-20 from the previous year’s 0.3 per cent rate would be expected to increase the pension liability by around £350bn.
Some schemes, including the four largest unfunded public sector schemes, moved from using Office for National Statistics’ 2016 life expectancy assumptions to its 2018 figures in their 2019-20 accounts.
The life expectancy under these new calculations is assumed to be lower, reducing the gain experienced on the liabilities.
These four schemes make up 81.9 per cent of the nearly £2.2tn liability. They comprise the National Health Service Pension Scheme, the Teachers’ Pension Scheme (England & Wales), the Cabinet Office Civil Superannuation, and the Armed Forces Pension Scheme.
The NHS scheme carries £760bn of liabilities, representing around 35 per cent of the total bill. Its liability increased by £140bn. The income received by the scheme currently exceeds its payments, with the surplus returned to the Treasury.
The Teachers’ Pension Scheme accounts for £490.4bn, or 22 per cent. It recorded a liability increase of £79.4bn.
The Cabinet Office scheme accounts for £308.6bn, or 14 per cent, while the Armed Forces scheme has £233.1bn in liabilities, or 11 per cent.
The income received by the second to fourth-largest schemes is insufficient to pay all pensions, with the balance of funding provided by parliament.
The Local Government Pension Scheme, meanwhile, has a £105.7bn liability. The remaining £291.6bn of liabilities are spread across other schemes.
The government predicted an increase of roughly £200bn in the reported public sector pension scheme liability in the 2020-21 government accounts, solely driven by a change in the net discount rate to minus 0.95 per cent from minus 0.5 per cent.
