The GDP forecast bug in public sector pensions

HM Treasury has confirmed the use of long-term GDP forecasts to discount the future value of public service pensions to set charges on employers, but the nosedive of GDP forecasts may cause a dramatic increase in contributions.

March 31, 2023 . 9:34 PM

1 min read

HM Treasury has confirmed the existing methodology of using long-term GDP forecasts to discount the future value of public service pensions in order to set the charge levied on employers.
Discounting against future GDP growth reflects the claim pension promises are making on future revenues.
OBR’s forecasts for long-term GDP have nosedived since HMT first landed on this answer in 2011, which means employers are likely to see a dramatic increase in their contributions.
Rising employer contributions do not affect public sector net borrowing, but may affect the amount of money employers can spend on other priorities.
The wisdom of this approach depends on how accurate the OBR’s 50-year GDP forecasts are.