UK OBR : Govt's Pension Reforms Reduce Liabilities by GBP175 Billion
07/12/2012| 07:04am US/Eastern
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By Ainsley Thomson
LONDON--The U.K. government's controversial reforms to public sector pensions reduced the country's pension liabilities by 175 billion pounds ($271 billion) between 2010 and 2011, the government's budget watchdog said Thursday.
In its annual fiscal sustainability report, the Office for Budget Responsibility said public sector pension liabilities stood at GBP960 billion, or 63.8% of the country's gross domestic product, at the end of March 2011.
In comparison, last year's report said the liabilities stood at GBP1.13 trillion, or 78.7% of GDP, at March 2010.
The OBR said the bulk of the difference was due to the government's decision to change the way public sector pension increases are calculated. Public sector pensions had increased each year in line with the Retail Prices Index measure of inflation, but in 2010 the government said pensions would instead increase by the Consumer Prices Index measure of inflation. CPI, which is a narrower measurer than RPI, strips out costs such as council tax and mortgage interest and tends to be lower than RPI.
The government has made it clear that it intends to press ahead with further pension reform despite ongoing resistance from unions, who have staged a number of mass strikes to protest the reforms over the past year.
The government says the reforms are necessary to reduce the U.K.'s GBP32 billion annual pension bill. But the unions say the reforms, which will see workers retire later and pay more towards their pensions, are unfair, especially as thousands of public-sector employees have already had their salaries frozen and face the prospect of losing their jobs under the government's austerity plan.
The OBR Thursday estimated that the government's reforms will cut the costs of public service pensions by 40% over the next 50 years, with net costs falling from 1.5% of GDP in 2010-11 to 0.9% 2060-61.
"The Treasury estimates that this represents around GBP430 billion of savings in current GDP terms over the next 50 years," said Danny Alexander, Chief Secretary to the Treasury.
Write to Ainsley Thomson at ainsley.thomson@dowjones.com
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