The UK government currently has almost £5 trillion worth of pension liabilities which it will have to pay in the future (£1.2 trillion for public service pensions and £3.84 trillion in respect of the state pension). Most of these are unfunded, meaning that they are largely paid out of annual tax revenues and the bill for them is being passed on to future generations because today’s government is not putting money aside to cover them.
In this study, IF asked a group of 50 of Britain’s leading thinkers in economics whether they thought this situation was tenable, or whether future governments will end up trying to reduce their liabilities in some way. Specifically, they were asked to give their views in response to the following questions:
1. According to the ONS, Britain currently has £1.2 trillion worth of public sector pension liabilities, three-quarters of which are unfunded. What do you think is the likelihood that these will be paid in full?
2. In Britain the state pension is currently paid regardless of other income and assets. However, in some countries (including Australia) it is means-tested. Do you think means-testing of the state pension is likely to be introduced before 2040?
The results – 75% of the economic experts said they did not think the public sector pension liabilities would end up being paid in full, and almost 50% said that they thought the state pension would become means-tested before 2040 – suggest that policy-makers have not yet reformed pensions sufficiently to make them sustainable, and a crisis is looming that will have a major impact on future generations.