What is net value of State Pension funds after all liabilities have been deducted?
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The UK State Pension is unfunded, which means that its obligations are not underpinned by an actual fund or funds. Such schemes are often referred to as “Pay As You Go” (PAYG). The pension payments made by the government for unfunded pensions are financed on an ongoing basis from National Insurance contributions and general taxation.
This means that while the accrued-to-date pension obligations can be estimated, there are no assets set aside to generate investment return and there is no net value (liabilities less assets). The relevant statistics can be found in the National Accounts Table 29: Accrued-to-date pension entitlements in social insurance. At the end of 2015, the estimate of the accrued-to-date State Pension obligations, as recorded in Column H of the table, was approximately £4,027 billion. It should be noted that pension obligations are valued with a time lag, and we have not yet published more recent estimates.
The article Pensions in the national accounts, a fuller picture of the UK’s funded and unfunded pension obligations: 2010 to 2015, published in March 2018, explains in detail the layout of Table 29 and the methodology used in producing estimates of pension liabilities. As stated in Section 11 of the article, we intend to continue producing and publishing Table 29.
We should clarify that the estimates presented in this table and in the wider UK National Accounts are produced on a “closed system” basis, which does not take into account future accruals. They provide an important snapshot of UK pensions. However, policy decisions require fiscal sustainability analysis, particularly for unfunded pension schemes such as the State Pension. For such pension schemes, fiscal sustainability or “open system” analysis looks at whether projected future receipts of contributions and tax payments will be sufficient to meet future benefit payments. The Office for Budget Responsibility, UK’s independent producer of economic and fiscal forecasts, includes the analysis of State Pension spending on an “open system” basis in its Economic and fiscal outlook and Fiscal sustainability report.