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Government pension liabilities top £5trn

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Private sector defined benefit pensions are now worth £2trn, with only £240bn held in workplace defined contribution plans.

Individual personal pensions hold £302bn meaning in 2015 they outstripped the amount held in similar workplace defined contribution pensions by 25%. This may change in the next 12 months as auto-enrolment contributions increase.

All this is dwarfed by the government’s pension responsibilities, which sit at £5.3trn, of which £4trn is in the state pension.

Unfunded defined benefit workplace pension entitlements for public sector employees were estimated at £917bn, equivalent to 49% of the annual GDP of the UK. ‘Unfunded’ means that the government currently has nothing set aside to pay for these pensions.

Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “Most people saving for retirement will be doing so in modern, flexible defined contribution pensions, but this data shows quite how important it is to support private sector defined benefit pensions which remain a critical part of the nation’s household finances. These types of plan in the private sector still account for a whopping £2trn of household pension entitlements.

“In recent years we have had reform to state and public sector pensions, but a quarter of the retirement entitlements are due for review shortly. There are concerns around the funding, the governance and the efficiency of these private sector defined benefit pension schemes. A government white paper expected next week will be watched with interest.”

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