Pensions and Other Liabilities: The Benefits of Disclosure and Management

Non-debt liabilities (mainly public sector employee pensions) represent an important part of the government balance sheet, and in some cases exceed total government debt. However, conventional debt-based fiscal targets or rules do not take these liabilities into account. This can lead to major distortions in the presentation of government finances, and by implication in financial decision-making. These points can be illustrated by examining how year-to-year developments in a UK pension scheme translate into very different outcomes under the UK’s fiscal target framework and under conventional accounting. Similarly, it can be demonstrated that the costs of providing unfunded public sector pensions are very high. If public sector schemes were fully funded and invested in diversified global portfolios (e.g. through Sovereign Wealth Funds) there would be scope for very substantial improvements in government revenues, and government balance sheets would be more resilient.