British-North American Committee Releases Public Sector Pensions Report
U.S., UK, Canada governments understate public sector pensions cost
London, UK – The British-North American Committee (BNAC) report released today warns that the true costs of public sector pensions are being significantly understated by the U.S., UK and Canadian governments.
In the UK, where unfunded schemes predominate, public sector pension liabilities are already equivalent to 85 percent of GDP. This is three times higher than in North America, where the majority of public sector schemes are now funded to meet all or some of the cost of anticipated future pension liabilities. In the U.S., the same figure is “only” 28% of GDP, and in Canada, it is 27 percent. BNAC’s report found that all three countries use interest rates in their pension calculations that are higher than their own sovereign market-based interest rates as required by the International Public Sector Accounting Standards Board (IPSAB) Standard IPSAS25. This results in liability calculations below the market rate calculation.
Neil Record, chair of the report’s working group, noted: “Governments, when challenged on the huge forward liabilities involved with public sector pensions, are all too keen to respond that these can be ‘comfortably met from future income from taxpayers.’ The reality, however, is that the true costs of these large financial commitments are being hidden from present tax-payers and, even more worrying, are destined to predetermine the use of monies raised from future taxpayers as yet unborn. Inevitably, this will reduce the amounts available for the running of public services in the future.”
The BNAC study makes three recommendations:
- Transparency of costs in public bodies’ reports to taxpayers, particularly in calculation methodology, should be the first priority of all three governments.
- Pension liabilities promised by a public body should be valued (and charged for) at sovereign market interest rates. Any other interest rate is likely to understate the true cost of pensions and distort reporting between unfunded and funded pension schemes. This recommendation is in line with IPSAS25.
- Consideration should be given to amortizing or monetizing net public pension liabilities, so that intergenerational transfers between taxpayers are explicit.
Launched in 1969, the British-North American Committee (BNAC) is a group of business, academic and labor leaders in Canada, the United Kingdom and the United States committed to harmonious and constructive relations among the three countries and their citizens.
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