Message to John B on pensions


Let\’s remind ourselves what our Real National Debt calculation is actually looking at.

It\’s looking at the government\’s commitment to make future payments in respect of loans or services it has received in the past. Which is the standard and essential definition of debt (see paper).

Thus for example, we include the government\’s £1.3 trillion accrued liability to make public sector pensions payments. That relates solely to the service and pension contributions of public sector employees in the past – the pension entitlement they have earned so far. What we are saying is that public employees have provided services and loans (their contributions) to the government that they expect to be repaid during their retirement. It is debt, pure and simple.

Similarly, we include the £2.7 trillion liability to make state pension payments. Again, that reflects the accrued liability in respect of National Insurance Contributions already made in the past against pensions to be paid by the government in the future. It is an undischarged loan to the government.

The pensions assumptions do not include pensions which will accrue in the future: so they are much more akin to a contractual debt than they are not and so should indeed be included in a calculation of the true national debt.

12 thoughts on “Message to John B on pensions”

  1. Look, ignoring the bank debt, which you have often stated is absurd to include at 100%, of their calculation £2.7bn of that is the state pension.

    Now every family in Britain is going to get a state pension, so that’s about £100,000 per British family.

    So you simply can’t say each family faces a debt of £300,000, without noting they have an asset of £100,000. You just can’t include one without including the other.

  2. Matthew – actually what these figures imply is that it’s highly doubtful that every family in Britain is going to get a state pension.

    And I will note that it is, in practice, entirely possible to say that each family faces a debt, without noting that they have an asset. It’s about as possible as saying something like “thanks to the Welfare State, everyone in Britain is insured against dire poverty in old age by a pension” without mentioning that thanks to the Welfare State, every taxpayer in Britain has a debt equivalent to the total costs.

  3. “actually what these figures imply is that it’s highly doubtful that every family in Britain is going to get a state pension. ”

    Then it doesn’t cost that much! If its doubtful they will get it, its doubtful the govt will pay it.

    “And I will note that it is in practice, entirely possible to say that each family faces a debt, without noting that they have an asset.”

    It’s not really in this case. What you mean is because of redistribution the State Pension scheme will cost some familes more than they get back and vice versa. Which is correct but not relevant to the TPA analysis, which is based on a mean ‘average’.

  4. Matthew – I agree with you that it is likely that those pension payments will be cut somehow. But this is important information for voters and MPs to have, when they consider other possible spending commitments. Cutting the pensions is not going to be painless politically, nor is it going to be painless for those people whose pensions is cut. The more government money that is spent on other non-pension things, the more these pensions are going to have to be cut (or taxes raised, or some combination thereof). This is information that should be easily accessible.

    As on my other response, what I meant is that people can say anything at all. Perhaps what you mean is that people shouldn’t be leaving out the assets, despite your use of words like “simply can’t” and “just can’t”. But figures of gross debt of course do leave out the assets, otherwise they’d be figures of net debt. Furthermore, in the case of pensions, we can’t reduce our debt obligations by selling the rights to the pensions, so the claim that we have an asset doesn’t tell us anything.

  5. I think Wat and I just have a dramatically different worldview on the real meaning of state pensions.

    To me, they’re simply another kind of state benefit; instead of being granted to people who can’t work because they’re sick, or who can’t work because there aren’t any jobs, they’re granted to people who can’t work because they’re too old. I’ve also assumed that they’ll be abolished (or, more likely, means-tested and raised the age to 75) benefits by the time I’m old enough to retire anyway, and that NI is just another element of my tax bill when working out what my actual take-home pay will be.

    I think I’m right in terms of what will happen, but I can see people who genuinely believed NI was insurance like Australian or Singaporean mandatory pension funds, and not just another word for “tax”, might be pissed off about it. Still, that doesn’t have much to do with the national debt IMO.

  6. John B, do you think that sovereign governments should report any debts at all?

    Luis Enrique, this matches with the stories I’ve heard from NZ government accountants about the nasty labelling tricks goverments can pay with public finances.

  7. John B, Okay, so you’re happy with the government including obligations that it could legally repudiate, but has a signed contract saying that it will carry out.

    Next question: Why do you think the government should report the debts that it has signed a contract on, given that it can always do a sovereign default?

  8. “people who genuinely believed NI was insurance”: that is remarkably naive of them, given Nye Bevan’s remark of many decades ago: “The great secret of the national insurance fund is that there ain’t no fund.”

    Still, there are chumps who believe that NI contributions have a profound tie to their entitlement to use the NHS. It takes all sorts.

  9. There is actually a National Insurance Fund. It has about £50bn in it.

    I think the issue is this. It’s a bit strange to go merrily around thinking ‘Phew I’m not poor as I thought as I own £100,000 of State pension rights’ and not also think about the cost of your future taxes to pay for pensions.

    I mean no-one who gets a job next year on £50,000 assumes that is what they will take home. Clearly some level of taxes is factored in.

  10. “There is actually a National Insurance Fund. It has about £50bn in it.” What do you mean by that? That the govt has 50 bn put aside and ring-fenced in equities or other assets? Or that there’s a fictional entry in a spreadsheet?

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