Silver argues that policymakers should include pension liabilities and "and a reasonable estimate of the likely liabilities to be incurred by the government in respect of the banking sector" within their calculations of the national debt.
If they do then the size of the national debt is £4.8 trillion rather than £772m. Or, as a percentage of national income, 333% rather than 54%;
"Liabilities from financial interventions make up £73bn of the debt, while public sector pension schemes comprise £1,179bn. This level of debt arises, in large part, because of the government making unfunded pension promises which will have to be honoured by future generations of taxpayers."
Once policymakers are faced with the reality of the pension burden that one generation is leaving for the next, Silver says that some tough policy choices need to be made. He recommends:
- The Office for Budget Responsibility (OBR) should compile figures showing the government’s explicit and implicit debt arising from pension liabilities every year.
- All future public sector pension liabilities should be financed up front and funded with index-linked gilts or other assets.
- The state pension age should rapidly be increased to 70.
- The linking of state pensions to earnings and the minimum 2.5% increase should be abandoned.