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Last Updated: Thursday, 17 February, 2005, 12:50 GMT
Public sector pension gap 'wider'
Public sector workers
Future generations of taxpayers will be plugging the existing gap
The shortfall in public sector pension schemes is 690bn, far greater than official figures indicate, a leading actuary firm has said.

The gap between assets and liabilities is almost 60% higher than recent official estimates, Watson Wyatt said.

Many public sector schemes are "unfunded", operating on a pay-as-you-go basis.

This means that liabilities that cannot be met by higher member contributions are met from the public purse.

Given the enormous size of public sector pension liabilities, it is vital that they too are properly accounted for
Stephen Yeo, Watson Wyatt

The last official estimate, published in October 2004, put the public sector pension deficit at 425bn.

Increasing pressure

However, Watson Wyatt claims that the official figures underestimate the size of the pension black hole because they assume "very high rates of interest" will be earned on investments.

The actuary firm added that changes in the way pension fund liabilities are calculated and greater life expectancy are increasing pressure on public sector pension schemes.

"Pension liabilities have been rising in both the public and private sectors," said Stephen Yeo, a partner at Watson Wyatt.

"Given the enormous size of public sector pension liabilities, it is vital that they too are properly accounted for."

About four fifths of the total liability lies in the schemes of teachers, the NHS, civil service and armed forces.

The remaining one fifth lies with schemes held by the police and fire service as well as numerous smaller schemes, including some for the devolved administrations.

The government is introducing changes to public service pension schemes, which should help meet the shortfall.

On Friday, the TUC is holding a day of action against the proposed changes to public sector pensions.

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