Baring Asset Management is proposing the creation of a fully funded public sector pensions system to cover civil servants, the NHS, teachers and the armed forces.
It would be based on successful schemes such as the Dutch public sector workers’ scheme ABP and the California public employees scheme Calpers.
Barings director of fixed income Toby Nangle believes that Gordon Brown, as Prime Minister, has the opportunity to move public occupational pension schemes to a fully funded basis when the Whole Government Accounts project comes to fruition later this year.
Nangle has produced a white paper called Solving the UK’s Pension Problem to show how the Government could reduce the cost of pension provision to the public and remove the UK yield-curve distortion.
He proposes a system along the lines of ABP or Calpers – the Californian public employee retirement scheme – and says the fully funded institutions would be scheme-specific.
Nangle says over £600bn of unfunded public sector occupational pension deficits will effectively be brought on-balance sheet later this year as part of the move towards Whole Government Accounts.
Nangle says: “This move could remove the UK yield curve distortion, providing relief to the private sector, and potentially enabling them to halt the tide of defined-benefit scheme closures. At present, only local authorities and MPs benefit from fully funded pension schemes. Rolling this out across the public sector would be a bold move of similar magnitude to the granting of independence to the Bank of England 10 years ago.”
Richard Jacobs Pension & Trustees Services managing director Richard Jacobs says: “It is a fantastic idea and a great opportunity but Brown is not going to do it because it is not his idea. These schemes are costing the tax-payer a fortune and all credit to Barings for coming up with this solution.”