I agree with Gary Simmons that local government pensions should be unfunded. Funding public sector pensions makes sense only if investments can be guaranteed to provide a real yield over long periods, and this requires continual economic growth.
But economic growth consumes finite resources and cannot therefore be infinite.
However, a more immediate concern is that the continuous growth we have experienced over recent years has been generated by excessive bank lending, but this is being drastically scaled back.
We also have a massive increase in government borrowing, which will incur increased interest payments and consequently higher taxes or public spending cuts. This does not augur well for future economic growth and investment yields.
Moving to an unfunded scheme would have a beneficial effect on local authority cash flows. In 2007/08, employer and employee contributions exceeded benefits by £1.5bn and this is likely to grow for as long as contribution increases are needed to pay off deficits.
In the long term, the cost of providing public sector pensions on the current scale will be unaffordable with either a funded or unfunded scheme.
John Hopwood, chief loans and investments officer, Cambridgeshire County Council
