Government pension liabilities were £6.4 trillion in 2018, representing an increase of 21% compared with 2015, according to the latest Office for National Statistics figures
In 2018, pension liabilities of central and local government were made up of £4.8 trillion of state pension entitlements, unfunded defined benefit workplace pension entitlements for public sector employees estimated at £1.2 trillion and funded defined benefit workplace pension entitlements for public sector employees worth £413bn.
The scale of the deficit raises concerns about how the government plans to fund public sector and state pensions in the years ahead.
At the end of 2018, accrued-to-date gross pension liabilities of UK pension providers in respect of employment-related (workplace) pensions and state pensions are estimated to have been £8.9 trillion, compared with £7.6 trillion at the end of 2015.
Government-managed pension schemes had liabilities of £6.4 trillion in 2018, of which state pension liabilities were the largest component: £4.8 trillion. State pensions are unfunded, mandatory and contributory.
The cost of funding the state pension rose by £700bn over the three-year period, highlighting the growing gap in financing the payments. Pensions expert and former pensions minister, Sir Stephen Webb, now a partner at LCP, warned that the government needs to address the funding shortfall to ensure pension costs were covered.
The ONS figures exclude privately funded pension schemes, such as SIPPs.
Defined benefit pension deficit
The funding deficit for the UK’s 5,000-plus corporate defined benefit (DB) pension schemes fell to £120bn in January, according to schemes’ own measures.
Pension fund assets and liability values both fell in January, measured on the funding assumptions which pension schemes are currently using. The net result of a £120bn deficit is lower than levels seen during the course of 2020, reflecting a recovery in asset values since the market shocks of 2020, according to analysis by PwC.
Raj Mody, global head of pensions at PwC, said: ‘2020 was a turbulent year for geopolitics, the economy and the country as a whole, full of uncertainty for both markets and individuals. The last couple of months of the year showed signs of improvement for pension schemes financial health, which has sustained into early 2021.’