Retirement savers have stashed £7.6 trillion away to pay for their old age – but pension schemes have less than a third of the money banked, according to a new analysis.
Official figures show that the total pledged to pay out is £7.6 trillion – compromising the state pension, civil service and public sector schemes, workplace pensions and private pensions.
The Office of National Statistics – the government’s number crunchers – reckons the liability increased by £1 trillion between 2010 and 2015.
Steve Webb, director of policy at financial firm Royal London said: “The numbers in this report are truly mind-boggling. Today’s population has built up £7.6 trillion in pension promises but has only set aside about a third of that amount to pay for them.
Tomorrow’s people
“The rest will have to be financed by tomorrow’s workers. If we are to have a meaningful debate about how we pay for an ageing population and about fairness between generations, figures like these need to be published on a regular basis and should inform policy-making.”
The liability or funding gap is the difference between cash and assets that pension trustees have set aside to pay out and the cash they need to meet the guarantees made by their schemes.
Alistair McQueen, head of savings and retirement at Aviva, said: “For unfunded pensions, the thinking is that workers today pay for today’s retirees on the understanding that our own retirement tomorrow will be funded by tomorrow’s workers.
“Demographics suggest that accepting this deal in the future will become increasingly tough as the number of workers supporting each pensioner declines.”
How the bill works
The government bill of £5 trillion is mainly made up from expected state pension pay-outs – £4 trillion. Unfunded public pensions for health workers, teachers and the civil service come to just under a trillion, while local government pensions total £300 billion.
Company pensions total £2.3 trillion – £2 trillion for direct benefit/final salary schemes with guaranteed, inflation-linked payments and the rest divided between annuities and direct contribution pensions.
Personal pensions account for just £0.18 trillion.
“After the £2.3 trillion that already exists, the rest of the UK’s pension liability is unfunded – meaning that it is not currently held in a central pot and, simply rests on a promise that the government will have enough money to pay out in the future,” said Brean Horn, writing for the Which? web site.
