Hi

Every so often a statistic appears that stops you in your tracks. The latest one did exactly that:

Britain’s unfunded public-sector pension bill will reach £5.8 trillion this year.

That’s not a projection.

That’s a current obligation based on pension promises already made.

And spread across the country, it now equals £203,000 per UK household, up from £173,000 just last year.

Those numbers come from former Bank of England economist Neil Record, whose analysis is stark:

“The burden now facing taxpayers is out of control… Not only does the extraordinary generosity of the unfunded public sector pension schemes distort the labour market, but it is both morally and economically indefensible to expect future generations of taxpayers to pay for pensions they won’t and can’t have themselves.”
— Neil Record

Angus Hanton, from the Intergenerational Foundation, goes further:

“These numbers are a betrayal of younger people… They illustrate the extent to which the civil service and senior politicians are totally compromised by being in the scheme themselves.”

This is not political point-scoring. It’s arithmetic. And the arithmetic is getting worse.

What £203,000 per household really means

Because the civil service, NHS, police and teachers’ pensions are unfunded, there is no investment pot behind these benefits. They will be paid entirely from future taxation. Put simply:

Tomorrow’s workers will fund yesterday’s pensions. And there are fewer workers and more pensioners every year.

It is the equivalent of adding £203,000 to your mortgage tomorrow morning and having to pay it off every year for as long as you are a taxpayer.

Even if you don’t have a mortgage, you’d still be on the hook through future taxes. So taxpayers are being asked to carry three heavy loads at once:

• their own mortgages or rent
• their own private pensions (entirely funded at their own risk)
• a share of a £5.8 trillion pension bill for public-sector workers

That is the imbalance no one wants to talk about.

The private sector pays twice — now and later.

Public-sector pensions are defined benefit, index linked, guaranteed and entirely protected from investment risk.

Private-sector workers, on the other hand must fund their own pensions, carry market risk, shoulder longevity risk and still pay taxes to finance public-sector pensions far more generous than their own.

This is what Record means by “morally and economically indefensible”.

We are creating a two-tier system where:

• one group receives a guaranteed pension for life
• the other must fully fund their own retirement and help pay the costs of the first

And it’s about to get worse.

The Chancellor has already announced that from 2029: Salary sacrifice allowances will be capped at £2,000.

AJ Bell calculates that:

A 35-year-old earning £50,000 will end up with £22,000 less in their pension pot by age 65.

So younger private-sector workers are being squeezed from both sides: they’ll pay more tax to cover unfunded public-sector pensions, and they’ll receive less support in building their own pension assets.

It’s hard to call this intergenerationally fair.

The demographic squeeze

This imbalance widens each year because the private sector is shrinking as a share of the workforce and the retired public sector is growing. Payments are index-linked, all benefits must be funded out of current and future tax revenues and the ratio of workers to pensioners is falling.

If this were a business, you’d describe it as:

• ballooning liabilities
• declining revenues
• no investment fund
• and no plan to fix it

You wouldn’t accept this in your own accounts. You’d restructure the commitments — quickly.

Is this morally defensible?

This isn’t about criticising public-sector workers. They accepted the pension terms offered. The question is about fairness.

Is it right for future private-sector workers — who will never receive an equivalent pension — to shoulder a £5.8 trillion bill for promises they didn’t make and cannot rely on themselves?

And what happens when there simply aren’t enough taxpayers left to support the system? Because that point will come.

So what should a business owner do?

Three pragmatic steps.

1. Assume the state will not — and cannot — fund your retirement

Your financial independence depends on your own hard graft and the performance of your business, not unfunded promises. It's never too soon to build your financial plan.

2. Build a fully funded personal pension strategy now

SIPPs, ISAs and company contributions compound quietly and reliably. Unfunded schemes do not.

3. Stress-test your financial plan for:

• higher taxes
• lower pension incentives
• reduced state benefits
• and more redistribution from workers to retirees

The uncomfortable but necessary question: If the UK were a company with a £5.8 trillion pension deficit and a shrinking contributor base, what restructuring would you recommend?

Because that’s the real conversation the country isn’t having.

Noel Guilford