UK - THE government's decision to cut 100,000 civil service jobs will put an enormous strain on the sector's pension schemes, Punter South-all has warned.
The actuarial consultant said the cuts, which are part of Chancellor Gordon Brown’s spending review, would cause “short-term cash strains” and “long-term liability increases” for both the Principal Civil Service Pension Scheme and the Local Government Pension Scheme.
Partner Jonathan Punter (pictured) said the LGPS was very poorly funded while the %SPS, which has liabilities of £73.8bn, was not funded at all.
Both though, he said, offered significant benefits for older members.
Members of the %SPS made redundant after 50 receive an enhancement to their service which is used to calculate their pension and also get an annual compensation payment until their actual retirement age.
Members of the LGPS get an immediate lump sum and their pension without reduction.
Punter predicted that even if “wholesale redundancies” did not occur, the government was likely to use the generous early retirement provisions of both schemes to reduce the workforce faster than natural attrition, causing huge strains on the funds.
He said: “One has to question the financial impact of the government’s proposals on the funding of the major civil service pension schemes in the event that the workforce reductions are not achieved through natural wastage or redundancy of younger members.
“As well as placing a short-term cash strain on these schemes and related redundancy schemes, the long-term liabilities are likely to increase in arrangements that are either not funded at all or very poorly funded.”
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