Could Northern Ireland’s public sector pension liability really be this bad?

The recently released Varney Review discussed here once again highlighted how hugely bloated Northern Ireland’s public sector is, pointing out that an incredible 28% of Northern Ireland’s workforce are in the public sector as opposed to 20% in the UK and that public spending accounts for 67% of GVA, the highest in the developed world. But one area it didn’t touch on was what sort of pension liability this entails for Northern Ireland going forward, which by my reckoning is already hitting 20 29.7 billion pounds and rising.

Most public sector pension schemes are unfunded so the liabilities being built up today are not matched by the accumulation of funds to pay for them. The British Government Actuary’s Department (GAD) has calculated what these pension liabilities for the UK as a whole are, using estimates of life expectancy and assumptions on salary growth and discount rates. According to the Institute for Fiscal Studies, the liability has been rising alarmingly over the last few years, even using the official figures:

2006 – 725 billion
2005 – 530
2004 – 460
2003 – 425
2002 – 380
2001 – 350
2000 – 330
1999 – 310
1998 – 295

Other estimates put the 2006 liability at as high as 1,025 billion. The huge increase is due to a variety of reasons such as the increases in life expectancy, recent public pay increases (public pensions depend on final salaries) and the jump in the number of public sector workers over the period. Under New Labour, the numbers of UK public sector workers has increased from 5.18 million in 1997 to over 5.8 million nine years later.

So what about Northern Ireland’s liability?

Lord Varney says that 20% of Northern Ireland’s workforce is in the public sector, which works out at around 157,000 or 2.7% of the UK total, giving an unsecured public pension liability somewhere in the region of 19.5 billion on the official 2006 figures. That’s 85% of Northern Ireland’s GDP.

Apologies: It’s actually a lot worse as 28% is the percentage of Northern Ireland’s workforce in the public sector while 20% is the UK average. This works out at 214,000 or 4.1% of the UK total, giving a giving an unsecured public pension liability total of 29.7 billion on the official 2006 figures. That’s 129% of Northern Ireland’s GDP.