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Notes on a scandal

Amid all the furore over MPs’ expenses it occurred to me that a far greater financial scandal has been overlooked.

The issue – one that will last for generations to come – is state and public sector pensions.

The figures for Government debt, as with most published Government statistics, are vastly understated due to the huge amount of “off-balance sheet” debt not included.

Whether it be private finance initiative payments, unfunded public sector and state pensions, the Government guaranteed debts of Network Rail or the expected cost of nuclear decommissioning, all such unofficial debts make a huge difference to the amount owed.

The official debt stood at less than 43 per cent of GDP after the nationalisation of Northern Rock but total liabilities were in fact 129 per cent.

The cost of servicing the official debt alone is forecast to rise from £30.8bn a year in 2008/09 to £50bn by 2013/14.

Of course, the biggest liability of all is state and public sector pensions which are totally unaffordable. Everyone is living longer and there are less people working to support those who are retired. By 2050, the dependency ratio is predicted to fall from three people working to one retired person, to one worker for every one retired.

The great problem with these Government pensions is that they are totally unfunded and paid for by current taxpayers. A Government pension is nothing but a Government promise.

The private sector has been closing down guaranteed final salary pension schemes for years. Public sector schemes will eventually close too. Did you know that approximately one third of your council tax pays for council employees’ pensions?

Never mind bashing the “fat cats” and their pensions in the private sector. At least their final salary pensions are funded by companies who pay for them out of the profits they make.

Of course the worst example of public sector pensions greed are MPs themselves. An MP accrues a civil servant’s pension at twice the speed of an ordinary civil servant meaning an MP need work just 20 years to get the maximum 50 per cent of final salary plus three times the pension as a tax-free lump sum.

As if that wasn’t bad enough, MPs’ second home expense allowances are added to their final salaries to calculate their lucrative index-linked pensions.

There are three MP positions that provide an unbelievable pension – Prime Minister, Chancellor and Speaker of the House of Commons. Quite incredibly these posts do not require even 20 years’ service to get the maximum pension.

It is estimated that Tony Blair and Gordon Brown’s pension funds would have a value of £4-£5m on the open market. All at a time when the ordinary taxpayer has a cap of £1.75m on his pension fund before facing punitive tax charges.

Shame on you, MPs.

Tony Byrne is financial planning director at Wealth and Tax Management


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