This seems fairly important, doesn’t it?

The government is misleading Parliament and the public over the cost
to the taxpayer of public sector pensions. This takes the form of the
government reporting its pensions cost in a different way from that
required by pension regulations in the private sector.
● A discretionary cost method of calculation is used to determine what
public sector employers and employees pay each year for their
pensions, and is the ‘generally understood’ cost. It is based on an
(arbitrary) assumption about investment returns (i.e. an interest rate
of the government’s choosing).
● The official cost method is based on IAS19 – the measure approved by
the International Accounting Standards Board. The official cost method
is the one which UK regulation requires for private sector pensions.
● For conformity with UK pensions law, and comparability with private
sector pensions, therefore, public sector pensions should be accounted
for at the official cost.
● Members of Parliament, the general public, and indeed public sector
workers, are only told the discretionary cost.
● The government declares the official cost method, but only deep in its
pensions accounts (as required by regulation). As a result, the situation
is understandable only by experts.
● The difference between the two costs is huge. As an example, for the
NHS Pension Fund, in 2020-21 the discretionary pension cost as a
percentage of salary was 30.4%, and the official cost, 62.2%.

2 thoughts on “This seems fairly important, doesn’t it?”

  1. Same unfairness applies to public-sector calculation of the Pensions Lifetime Allowance. Private-sector (including GPs, hah!) can only save ~£1m in a Defined Contribution pension before they get hit with punitive taxes. Public-sector can accumulate about twice as much in Defined Benefit equivalent.

  2. It is *very* important as it reveals that the public sector worker is paid not just 10% more (as ONS reports) than the comparable private sector worker but 55% more [calculation based on estimate of average cost of private sector pension being 15% of salary]

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