Bloomberg News

U.K. Pension Liabilities Reach Five Times GDP, ONS Says

April 27, 2012

The U.K.’s state and private pension obligations reached 7.1 trillion pounds ($11.5 trillion) in 2010, almost five times the country’s gross domestic product, according to the Office for National Statistics.

The total amount, which includes funded and unfunded pension plans, is made up of 5 trillion pounds of government obligations and 2.1 trillion pounds from private employers, the ONS said in a statement today. The study is the first time gross pension liabilities have been presented this way, the ONS said.

Longer life expectancies coupled with the financial crisis, which caused two recessions and record low interest rates in the U.K., have hindered pension funds’ ability to meet their liabilities over the past five years. As most FTSE 100 (UKX) firms have stopped offering employees final salary pension plans, the government this year will push more people to save by setting up an automatic enrollment pension plan, which requires employees to opt out rather than opt in to saving for retirement.

Obligations for unfunded public pension plans were about 900 billion pounds at the end of 2010, or 58 percent of GDP, according to the ONS. That compares with about 52 percent of GDP in 2007, the ONS said, citing a European Union estimate.

Life expectancy for 65-year-olds grew to 18 years from 17 years for men from 2006 to 2010 and rose to 20.6 years from 19.8 years for women in that time frame, according to separate ONS data. Underestimating life expectancy by just one year can push up a pension fund’s liabilities by 5 percent, according to Swiss Reinsurance Co. Ltd.

The statistics include both funded pension plans, which are backed by a pool of assets, and unfunded plans, which are paid for by the taxpayer. The U.K. government’s national accounting only shows funded pensions.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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