According to BBC News, the NAO issued a report warning
unfunded public sector schemes they will pay out £79 billion by 2060, compared
with £25 billion this year. The report says the rise will be due to increased
longevity and increases in the real earnings of public sector workers.
The NAO also warns that annual pension payments will be
much higher if the public sector workforce increases. "The Treasury has
not assessed the impact of different assumptions about the size of the public
service workforce, despite it being a critical driver of pension costs," the
report said, according to the news report.
The NAO's estimate that cash payments to pensioners will
rise from an estimated £25.4 billion in 2009-10 to £79.1 billion in 2059-60 is
based on figures supplied by the Government Actuary's department. As a
proportion of the economy's total economic output, the Treasury estimates that
these payments will rise from 1.7% now to 1.9% by 2018-19, before eventually
falling back to 1.7% by 2059-60.
As well as assuming that women will live on average to 94.7
and men to 92.3, and that average public sector earnings will grow by 2% a year
above inflation, the NAO also assumed in its calculations that the public
sector workforce will not grow, despite a predicted 20% growth in the population
over that time.
BBC News reports that the NAO looked at the costs of the
so-called "pay as you go" public sector pension schemes, in which
pensioners are paid out of taxation rather than the proceeds of an underlying
investment fund. The biggest four schemes of this type are those of the civil
service, the armed forces, and the NHS and teachers schemes for England and
Wales, which account for 75% of all payments from unfunded public sector
schemes.
Last March the schemes covered 6.5 million people - 2.75
million staff, 1.59 million former employees who had not yet retired, and 2.13
million pensioners. The NAO found that total payments to pensioners made by
those schemes rose by 38%, from £14 billion in 1999-2000 to £19.3 billion in
2008-09.
The main reason for the increase was the 23% rise in the
number of pensioners during that time as more people retired. Employee
contributions also rose strongly over the same period, by 56% to £4.4 billion,
thanks to higher contribution rates and more staff making contributions.
According to the news report, the NAO will publish a
second report later this year which will look at the impact of recent changes
to the pension schemes and put forward recommendations. These involve the
assumption that the cost of higher contributions in the future will fall on
employees, with two-thirds of the higher costs being absorbed by lower payments
to pensioners and one-third being paid for by higher contributions, the news
report said.
The NAO's report can be downloaded from here.