£6 trillion and Counting.
In 2018, the UK grappled with a substantial pension burden*, with accrued pension liabilities totalling £6 trillion. Within this staggering figure, government pension responsibilities took main stage, including £4.8 trillion in state pension entitlements, representing a remarkable 224% of the nation’s GDP. Additionally, the unfunded defined benefit workplace pension obligations for public sector employees reached a staggering £1.2 trillion, constituting 55% of the GDP.
This surge in government pension liabilities, marking a 21% increase, was primarily attributed to a shift in the discount rate assumption from 5% to 4%, aligning with international standards.
These numbers underscore the immense scale of pension obligations faced by the state and public sector, posing substantial fiscal challenges.
None of this £6 trillion in pension liabilities is funded. Current and future taxpayers will fund this £6 trillion in unfunded liabilities.
A Legal Ponzi System.
Firstly, like a Ponzi scheme, the UK’s state and public sector pension system relies heavily on a continuous influx of new contributors to pay off the obligations of existing beneficiaries. With the ageing population and increasing life expectancies, the system faces a growing challenge as the number of retirees outpaces the number of new contributors entering the workforce. This demographic shift creates a precarious situation where the system relies on an ever-increasing pool of participants to meet its financial commitments.
Secondly, there is a lack of a fully funded reserve in the UK’s pension system. In a genuine pension plan, funds are diligently invested and grown over time to ensure that there are sufficient assets to cover future liabilities. However, the state and public sector pensions primarily operate on a pay-as-you-go basis, where current contributions from workers are used to pay pensions to retirees. This means that future pension promises are essentially backed by the expectation that future generations will continue to support the system. Without careful planning and political rationality, this dependency on future contributions resembles the unsustainable nature of a Ponzi scheme.
In summary, while the UK’s state and public sector pension system is not a Ponzi scheme in the criminal sense, it does have the same characteristics, particularly its reliance on an ever-expanding contributor base and the absence of a fully funded reserve to cover future obligations. To ensure the system’s long-term viability, policymakers must address these challenges and explore sustainable solutions. The Libertarian Party is a party that will address these challenges, we aim to save the system before it collapses under £6 trillion of debt.
The Libertarian Party is committed to addressing the challenges in the UK’s pension system and implementing reforms for long-term sustainability.
First, we propose ending the triple-lock for pensioners with over £500,000 in net wealth, ensuring that those who are financially well-off no longer receive disproportionate pension increases funded by taxpayers.
Second, we advocate for the enactment of a new pension system based on ‘ring-fencing contributions,’ which would safeguard all contributions made into the system, preventing future governments from diverting or misusing these funds. This measure aims to protect the financial integrity of state and public pension contributions.
Finally, the Libertarian Party suggests lowering the state pension for the 2-3 million British retirees who have accumulated millionaire-level wealth, aligning the pension system more closely with the principles of need-based assistance and fiscal responsibility. These policy proposals aim to create a fairer and more sustainable pension system while addressing existing inefficiencies.
– Mike Cosgrove – London &SE Coordinator