Putting the BHS pension deficit into perspective

The row about failed UK high street retailer BHS’s £572 million pensions deficit escalated in the past week, with former owner Sir Philip Green and House of Commons Work and Pensions Committee chairman Frank Field publicly trading insults. We have previously written about the circus of parliamentary select committees like this and while Sir Philip may not be whiter than white, we applaud his robust replies to the ludicrous posturing from the committee and its chairman.

At the same time, it is difficult not to find it ridiculous to hear politicians complain about a pensions deficit. When it comes to pensions, you see, the UK government has a small problem of their own. We say small, but… A recent study by the Adam Smith Institute found that the UK government has pensions liabilities of £1.3 trillion, 93% of which is currently unfunded. Is that a lot? Well, the official UK government debt tally stood at £1.6 trillion at the end of June, meaning that the pensions deficit almost doubles it (in fact, the study estimates that total unfunded liabilities, which includes student loans and various other obligations, are an eye-watering £1.85 trillion).

Now, of course the government, taking a leaf out of the 101 of Ponzi-schemes, intends to use future tax revenues to fund pensions. They will argue that their liabilities are not unfunded as the state’s ability to coerce money out of our kids serves as collateral for the pensions we have been promised. But even if you allow this immoral argument to stand in principle, it is still worth asking if it is at all possible for the UK government to loot the required amount from future generations? Just this week, new PM Theresa May confirmed that ex-Chancellor George Osborne’s ill-conceived “triple lock” on state pensions – they rise each year by the higher of the inflation rate, average earnings or 2.5% – will be continued for now. This means that, unlike the government’s “real” debt, it cannot be inflated away (unless of course you were to massively understate inflation, a topic we soon will pick up in another article).

Private pension schemes are designed to be covered, but can get into trouble if they make bad investment decisions. The BHS pension fund apparently made disastrous bets on equities, which quickly blew a large hole in their ability to meet their obligations. They then set out on a 23-year recovery plan, which ultimately proved to be inadequate. But at least the problem was recognised and a plan was in place. Not so with the gaping chasm in the state pension. Politicians should stay out of the BHS pensions debacle, not just because they have no business getting involved in the first place, but because the hypocrisy is nauseating.

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