By Steve Conley | Academy of Life Planning
17 April 2025 – Reading Time: 5 Minutes

In the early 1990s, the name Robert Maxwell became synonymous with pension betrayal. His theft of an estimated £400–£800 million from the Mirror Group pension fund shook the nation and led to major reforms. Yet today, a far greater scandal unfolds not in the shadows, but in broad daylight—with little public outcry and zero accountability.

I’m talking about the vast, largely unfunded, and poorly understood liabilities of UK public sector pensions—a system whose true cost dwarfs even Maxwell’s infamy.

A Colossal Debt Hiding in Plain Sight

According to the UK Government’s own accounts, the total liability for public sector pensions stands at a staggering £2.6 trillion. That’s 100% of GDP, owed not to banks or foreign investors—but to nurses, teachers, soldiers, civil servants, and police officers. These are earned benefits, promised in return for public service. Yet, the uncomfortable truth is this: there is no fund.

This “unfunded” pension liability is enormous – roughly equal to 100% of GDP and over 40% of all UK government liabilities.

Most public service pensions are unfunded, operating on a “pay-as-you-go” model. In plain terms, this means:

• No investments are set aside to meet future obligations.
• Current pensions are paid out of today’s taxes.
• Future generations are expected to foot the bill.

A Tale of Two Systems

Contrast this with the Local Government Pension Scheme (LGPS)—the exception to the rule. The LGPS is a funded scheme, with over £350 billion in assets, carefully invested to meet future liabilities. In fact, it’s currently over 100% funded, with a £22 billion surplus.

Meanwhile, the NHS, Teachers’, Civil Service, Armed Forces, and Police schemes remain unfunded. Collectively, these liabilities run into the trillions, with the NHS scheme alone carrying over £800 billion (adjusted for 2022 assumptions).

This disparity creates a two-tier system—some pensions are responsibly managed and funded; others are not.

Case Study: The Royal Mail Pension Scandal

To grasp how severe the issue can become, let’s revisit a key case: the Royal Mail pension scheme. Before privatisation in 2013, its pension fund had £29 billion in assets—enough to pay the retirement promises to postal workers.

The government took over the fund, spent the assets, and kept the liabilities. Today, that liability has grown to £45 billion, with taxpayers paying £4 million a day to support it.

There was no crime, no investigation. Just a quiet policy decision. In effect, the government did what Maxwell did—but on a scale 50 times greater.

A Moral and Fiscal Dilemma

This isn’t just a question of accounting—it’s a question of intergenerational justice.

How can we justify saddling future taxpayers with £2.6 trillion in pension promises without the assets to meet them? How can we talk about fiscal responsibility while quietly building the largest unfunded liability in British history?

And most crucially: Why is no one talking about this?

The answer lies in the way these liabilities are buried in the back pages of the Whole of Government Accounts—ignored by mainstream media and politicians alike.

What Needs to Change

At the Academy of Life Planning, we believe in transparency, accountability, and sustainable financial systems. This issue sits at the heart of our mission: to challenge the status quo and empower people with knowledge.

Here’s what we propose:

• Transparency: Pension liabilities should be front-page news—not hidden in technical reports.
• Independent Oversight: Remove the power to absorb pension funds into general revenue, as happened with Royal Mail.
• Fair Funding: Establish a roadmap to progressively fund key pension liabilities, relieving pressure on future generations.
• Public Awareness: Create citizen education campaigns that demystify pensions, so we all understand what’s at stake.

Final Thoughts

The UK’s public pension system, in its current form, is a slow-moving train wreck—one that can be seen clearly if we choose to look. Like Maxwell, this is a betrayal. But unlike Maxwell, the perpetrators are policymakers, and the victims are millions of hard-working Britons—and their children.

It’s time to stop treating pension funds as political playthings and start managing them with the care they deserve.

If we don’t act, history will look back on this moment and wonder: how did we let this happen again—only worse?

Want to be part of the solution? Join the conversation at the Academy of Life Planning. Let’s build systems that serve people, not power.

Your Money or Your Life

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By Steve Conley. Available on Amazon. Visit www.steve.conley.co.uk to find out more.

[Full Report With Sources]

UK Public Sector Pensions Funding Deficit – Comprehensive Analysis

Overview of Public Sector Pension Liabilities

Public sector pension promises represent the largest liability on the UK government’s balance sheet. As of the 2021–22 Whole of Government Accounts (WGA), the total accrued liability for public service pensions was about £2.64 trillion (excluding the state pension). This “unfunded” pension liability is enormous – roughly equal to 100% of GDP and over 40% of all UK government liabilities.

In fact, it has grown substantially in recent years (up from ~£1.9 trillion just three years earlier) (Public sector pensions liabilities could reduce by £1.2tn – mallowstreet – A Better Retirement for Everyone), though changes in actuarial assumptions (like the discount rate used) can cause large swings. For example, rising bond yields in 2022–23 are expected to reduce the measured liabilities by around £1 trillion in the next accounts simply due to the higher discount rate, even though the underlying pension promises are unchanged (Public sector pensions liabilities could reduce by £1.2tn – mallowstreet – A Better Retirement for Everyone).

Critically, most public sector pension schemes in the UK are unfunded defined-benefit plans (often called “pay-as-you-go” schemes). This means they do not have dedicated investment funds backing their liabilities. Instead, current workers’ contributions (and general taxation) finance the pensions in payment, with any shortfall met by the Treasury (Public sector pensions liabilities could reduce by £1.2tn – mallowstreet – A Better Retirement for Everyone) (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023). The major unfunded schemes include those for NHS employees, teachers, civil servants, police, armed forces, and others (e.g. firefighters, judiciary, etc.). In contrast, the Local Government Pension Scheme (LGPS) is the main funded public service scheme – it invests contributions in a portfolio of assets, accumulating a fund to meet future pensions. Below, we break down the liabilities and membership of the major schemes and highlight the distinction between the unfunded and funded arrangements.

Funded vs Unfunded Pension Schemes

• Unfunded Schemes: Schemes like the NHS, Teachers’, Civil Service, Police, Armed Forces (and others such as Firefighters) have no investment fund. Contributions from active employees (and their employers) are paid to the government, and pension benefits are paid out of current government revenue. These liabilities are explicitly underwritten by the Exchequer (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023). Unfunded schemes still require contributions (essentially an internal transfer within government accounts), and any gap between contributions and pension payments is covered by taxpayers through general public spending. For example, the NHS Pension Scheme currently actually generates a cash surplus – it takes in more contributions than it pays out each year, with about £4.3 billion of surplus in 2022–23 returned to the Treasury (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023) (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023). In contrast, other large unfunded schemes (teachers’, civil service, armed forces, police) pay out more than they receive, requiring net top-ups from public funds (Public sector pensions liabilities could reduce by £1.2tn – mallowstreet – A Better Retirement for Everyone). Overall, however, the Office for Budget Responsibility (OBR) judges these schemes to be fiscally sustainable after recent reforms – net spending on unfunded public service pensions is projected at only about 0.7% of total public spending (around 0.5% of GDP) in 2023–24 (Public sector pensions liabilities could reduce by £1.2tn – mallowstreet – A Better Retirement for Everyone).
• Funded Schemes: The primary funded public service scheme is the Local Government Pension Scheme (LGPS), which covers local authority and associated staff in England, Wales, Scotland, and Northern Ireland. Here, contributions are invested in assets (equities, bonds, property, etc.) via dozens of regional pension funds. The LGPS thus has substantial assets to offset its liabilities – in fact, as of the 2022 actuarial valuation the LGPS in England and Wales had £361 billion of assets vs. £339 billion of liabilities, a funding level of roughly 107% (i.e. a surplus) (LGPS Scheme Advisory Board – Scheme Annual Report). By March 2023, LGPS assets were ~£354 billion (LGPS Scheme Advisory Board – Scheme Annual Report) after a difficult market year, but the scheme remains roughly fully funded overall. This means the funding deficit is essentially zero for the LGPS in aggregate – a stark contrast to the unfunded central government schemes. (Individual LGPS funds vary, with most in surplus as of 2022, though some of the 87 local funds still had modest deficits (Review of LGPS fund valuations – GOV.UK) (Review of LGPS fund valuations – GOV.UK).) Other smaller funded schemes include the MPs’ Pension Scheme and schemes for certain public bodies; these are trivial in scale next to the LGPS.

The table below summarizes the major public sector pension schemes, their latest available liability estimates, membership, and funding status:

  Civil Superannuation annual report and account 2022-23 (HTML) - GOV.UK

](https://www.gov.uk/government/publications/civil-superannuation-annual-account-2022-to-2023/civil-superannuation-annual-report-and-account-2022-23-html#:~:text=Pensioners%20Total%20At%201%20April,Retirements%2025%2C921%20New%20dependants%207%2C605)) ( Civil Superannuation annual report and account 2022-23 (HTML) – GOV.UK ) | £342.1 billion (2022) ( Civil Superannuation annual report and account 2022-23 (HTML) – GOV.UK ) (£201.2 billion at 2023 rate ( Civil Superannuation annual report and account 2022-23 (HTML) – GOV.UK )) | Unfunded (pay-as-you-go; taxpayer backed). Includes “Classic/Alpha” civil service schemes. | | Armed Forces Pension Scheme (AFPS) | ~0.29 million () | ~0.45 million (est.) | £279.1 billion (2022) (Armed Forces Pension Scheme liabilities up £25bn – Pensions Age Magazine) (unfunded liability) | Unfunded (pay-as-you-go; taxpayer backed). Covers all UK armed forces. | | Police Pension Schemes (England & Wales)† | ~0.16 million (est.) | ~0.15 million (est.) | ~£250 billion (est. 2022)‡ | Unfunded (pay-as-you-go; taxpayer backed). Police pensions liabilities ≈11% of total unfunded in 2015 (Evaluating the government balance sheet pensions). | | Local Govt. Pension Scheme (England & Wales) | ~2.1 million (est.) | ~2.0 million (LGPS Scheme Advisory Board – Scheme Annual Report) | ~£339 billion liabilities vs £361 billion assets (2022) (LGPS Scheme Advisory Board – Scheme Annual Report) | Funded DB scheme (assets invested via 86 funds). ~107% funded (£22 bn surplus) in 2022 (LGPS Scheme Advisory Board – Scheme Annual Report). |

† Scotland and Northern Ireland have their own Teachers and Police pension schemes (unfunded) of smaller size; figures here are for the England & Wales schemes which dominate these liabilities.
‡ The police pension liability is not separately reported in WGA, but was about 11% of the total unfunded liability in 2014–15 (Evaluating the government balance sheet pensions). This implies roughly £160 billion at that time, and likely well over £200 billion by 2022 given growth in liabilities.

As shown above, the NHS Pension Scheme is by far the largest single public service scheme (over a third of the total liability on its own). As of March 2022 its total accrued pension liability was estimated at £840.9 billion (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023) (England & Wales NHS scheme), which dropped to £460.6 billion a year later purely due to actuarial assumption changes (a higher discount rate) (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023). The NHS scheme covers ~1.8 million active NHS staff and over 1 million pensioners. It is an unfunded scheme, but notably cashflow positive – in 2022–23 it received ~£18.7 billion in contributions versus £14.1 billion in pension benefits paid (NHS Pension Board annual report: 2022 to 2023 – GOV.UK), meaning a surplus that the Treasury recycles into other spending (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023). All future liabilities, however, remain the responsibility of taxpayers via the Exchequer (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023).

The Teachers’ Pension Scheme (TPS) for England and Wales is the next largest. It had around £532 billion in liabilities as of 31 March 2022 ([PDF] Teachers’ Pension Scheme (England and Wales) Annual Report …), which likewise fell to ~£303 billion in 2023 on revised assumptions ([PDF] Teachers’ Pension Scheme (England and Wales) Annual Report …). The TPS has on the order of 700,000 active members (teachers paying in) and a similar number of pensioner members drawing benefits. Like other pay-as-you-go schemes, contributions from working teachers are used to pay current retirees, with any shortfall topped up by the Department for Education. (Reforms in 2015 shifted the scheme to a career-average basis and increased member contributions, which has helped slow cost growth.) Scotland and Northern Ireland run their own smaller teachers’ pension schemes – for context, the Scottish Teachers’ scheme had an estimated £53.5 billion liability of its own around 2022 ().

The Civil Service Pension Scheme (covering civil servants and other public sector workers in the PCSPS/Alpha schemes) had about £342 billion in accrued liabilities at March 2022 ( Civil Superannuation annual report and account 2022-23 (HTML) – GOV.UK ) (before dropping to ~£201 billion in 2023 due to discount rate changes ( Civil Superannuation annual report and account 2022-23 (HTML) – GOV.UK )). It has roughly 560,000 active members in pensionable service and 700,000+ pensioner beneficiaries. This scheme is unfunded and financed through employer and employee contributions (which are set as a percentage of pay) plus Treasury top-ups as needed. Recent valuations have also reflected the cost of remedying the “McCloud” age discrimination issue, which is being addressed across all public service schemes (allowing certain members to revert to legacy scheme benefits, thus slightly increasing liabilities).

The Police Pension Schemes are also unfunded and represent a significant liability. Police officers historically could retire after 30 years of service on generous final-salary pensions, leading to a high ratio of pensioners to active officers. In 2015, the NAO noted police pensions made up about 11% of the total unfunded liability (Evaluating the government balance sheet pensions) (similar to the armed forces share). This suggests police pension liabilities on the order of £150–200+ billion (likely closer to £250 billion by 2022 given liability growth). The Home Office and devolved administrations cover the employer costs. Police and firefighter pensions have also been reformed (new career-average schemes from 2015, higher retirement ages, etc.), but they still rely on ongoing government funding. Annual police pension payments significantly exceed contributions – for example, a 2018 adjustment to discount rates suddenly increased police pension costs by ~£420 million per year, requiring a special Treasury grant to police forces (Police Pension Liabilities – Hansard – UK Parliament) (Police Pension Liabilities – Hansard – UK Parliament).

The Armed Forces Pension Scheme (AFPS) is another large unfunded plan, covering all UK military personnel. The AFPS liability was £279.1 billion in 2021–22 (Armed Forces Pension Scheme liabilities up £25bn – Pensions Age Magazine). This grew by over £25 billion that year due to actuarial losses (largely the low discount rate at the time) (Armed Forces Pension Scheme liabilities up £25bn – Pensions Age Magazine). The armed forces scheme has around 200–300k active members (Regular and some Reserve personnel) and hundreds of thousands of veterans receiving pensions. Like other unfunded schemes, it is financed from general government spending. Notably, armed forces and police pensions often allow retirement at relatively younger ages (reflecting the physical demands of service), which means pensions can be paid for longer periods, adding to costs.

Finally, the Local Government Pension Scheme (LGPS) stands out as the funded arrangement. The LGPS (England & Wales) had 6.49 million total members in 2023 (active, deferred, and pensioner members) (LGPS Scheme Advisory Board – Scheme Annual Report) (LGPS Scheme Advisory Board – Scheme Annual Report). Of these, roughly ~2 million are current contributing employees (in local councils, schools, etc.), and over 2 million are retirees drawing pensions. The LGPS is actually in surplus overall – at the 2022 valuations it was 107% funded (LGPS Scheme Advisory Board – Scheme Annual Report), with £361 billion of assets set against £339 billion of liabilities. By the end of 2024, despite market volatility, the LGPS assets across all funds had grown to over £415 billion, and on aggregate the scheme is estimated to be around 120% funded (an £85 billion surplus) under prudent assumptions (LGPS funding level hits record high at end of 2024 – Pensions Age). This robust position is due to strong investment returns over the years and past deficit-recovery contributions by employers. It means that, unlike the unfunded schemes, local government pensions do not represent a net liability for taxpayers at present – their costs are largely met from the invested funds and ongoing contributions. (That said, local authorities are ultimately backed by taxpayers too, so any funding shortfall of LGPS in the future could still have public finance implications. But currently, the LGPS is healthy, and even sees positive cashflow when including investment income (LGPS Scheme Advisory Board – Scheme Annual Report).)

Case Study: Royal Mail Pension Scheme Transfer

A notable example illustrating how government handling of pension assets can create taxpayer liabilities is the Royal Mail pension scheme transfer. Prior to Royal Mail’s privatisation in 2013, its defined-benefit pension plan had a colossal deficit that made the company unattractive to investors. In 2012, the government intervened by taking over the Royal Mail pension fund. The government assumed responsibility for paying out all past pension entitlements (liabilities) accrued up to that point, and in return it took ownership of the scheme’s assets.

The numbers were striking: around £28 billion in pension fund assets were transferred to the Treasury, while the liabilities taken on had a present value of about £37.5 billion (Implications of transferring the historic deficit of Royal Mail’s pension fund to the public sector – Office for Budget Responsibility) (The privatisation of Royal Mail: what about the pension scheme? – Intergenerational Foundation). In effect, the government immediately gained a one-off windfall (it could sell or use those £28 billion in assets, and indeed used them to help reduce public debt (The privatisation of Royal Mail: what about the pension scheme? – Intergenerational Foundation)), but in exchange the taxpayer inherited the obligation to pay tens of billions in pension promises to former Royal Mail workers over coming decades. The £9+ billion gap between the assets and liabilities was a direct cost to the public purse, and all the ongoing risks (investment, longevity, etc.) were shifted from Royal Mail to the government. Future taxpayers now must cover Royal Mail’s pension payments as they “crystallise over time” (Implications of transferring the historic deficit of Royal Mail’s pension fund to the public sector – Office for Budget Responsibility), even though this liability is not immediately visible in the headline deficit (it is recorded in the WGA, but was treated as a “contingent liability” in national accounts to allow the asset transfer to count as a capital gain) (Implications of transferring the historic deficit of Royal Mail’s pension fund to the public sector – Office for Budget Responsibility).

This Royal Mail case demonstrates how a pension that was funded can effectively become unfunded through a government policy decision. The government’s assumption of the Royal Mail scheme turned a private deficit into a public liability. At the time, ministers highlighted the reduction in Royal Mail’s debt and the injection of assets into the public coffers, while the fact that “future taxpayers would be liable” for £37.5bn in pension payments was played down (The privatisation of Royal Mail: what about the pension scheme? – Intergenerational Foundation). In essence, the government “raided” the pension fund’s assets to bolster its accounts, while leaving itself (and taxpayers) on the hook to pay the pensions. This is a cautionary tale: it improved Royal Mail’s balance sheet and helped enable privatisation, but at the cost of adding significantly to the public sector pensions bill. The Royal Mail Statutory Pension Scheme is now a closed public scheme that will be paying out benefits for decades, funded by general taxation.

Conclusion

In summary, the UK’s public sector pension landscape is marked by a huge overall funding shortfall if viewed in traditional terms – on the order of £2–3 trillion of promised benefits are not backed by invested assets. Almost all of this relates to the unfunded schemes for NHS, teachers, civil service, armed forces, police, etc., which rely on future tax revenues. The Local Government scheme is a notable exception, being fully funded by contributions and investments (indeed now in surplus). Thanks to reforms following the Hutton Commission (career-average schemes, higher contributions, later retirement ages, CPI indexation, cost cap mechanisms, etc.), the trajectory of these liabilities has been curbed – the OBR deems the reformed schemes’ long-term costs manageable (Microsoft Word – Unfunded pensions – Rybczynski draft) (Microsoft Word – Unfunded pensions – Rybczynski draft). From a cashflow perspective, public service pensions currently require only a small supplement from the Treasury each year (a few billion pounds, relatively minor in a nearly £1 trillion budget) (Microsoft Word – Unfunded pensions – Rybczynski draft). However, the accrued liabilities will remain a significant burden on the public finances for decades. They represent an implicit debt to public sector workers and retirees that future generations must pay.

The government’s consolidated accounts make clear the scale: public sector employees – nurses, teachers, civil servants, soldiers, police officers – are among the Treasury’s largest creditors, owed trillions in future pension benefits (Microsoft Word – Unfunded pensions – Rybczynski draft). Unlike bond debt, these pension promises cannot be traded and are not included in headline national debt statistics, but they are very real obligations. Distinguishing funded vs unfunded schemes is crucial in this context. Funded schemes like the LGPS have largely addressed their deficits through investment returns and contributions, insulating taxpayers from additional liability. Unfunded schemes, by design, place the full burden on the state. The Royal Mail episode further highlights that even a funded scheme’s assets can be effectively nationalised, adding to taxpayer burdens if the liabilities are assumed by government.

Policymakers continue to monitor and manage these commitments – for instance, through regular actuarial valuations and an employer cost cap to adjust benefits or contributions if costs drift from projections. While there is no immediate “crisis” (annual pension payouts are budgeted and relatively stable around 1–2% of GDP (Evaluating the government balance sheet pensions) (Evaluating the government balance sheet pensions)), the total public sector pensions deficit remains a massive sum that will unwind over generations. It is effectively part of the nation’s long-term debt. Transparency in reporting (via documents like the WGA) and responsible stewardship – possibly including consideration of funding more of these schemes – will be key to ensuring these earned pension benefits can be paid without placing undue strain on future public finances.

Sources: Official government accounts and reports (Whole of Government Accounts () (), scheme annual reports (HC 1470 – NHS Pension Scheme Annual Report and Accounts 2022-2023) ([PDF] Teachers’ Pension Scheme (England and Wales) Annual Report …) ( Civil Superannuation annual report and account 2022-23 (HTML) – GOV.UK )), National Audit Office analyses (Evaluating the government balance sheet pensions), Office for Budget Responsibility and Scheme Advisory Board data (Public sector pensions liabilities could reduce by £1.2tn – mallowstreet – A Better Retirement for Everyone) (LGPS Scheme Advisory Board – Scheme Annual Report), and news coverage of pension developments (Armed Forces Pension Scheme liabilities up £25bn – Pensions Age Magazine) (The privatisation of Royal Mail: what about the pension scheme? – Intergenerational Foundation). These provide the latest available figures and illustrate the funded vs unfunded distinction and the Royal Mail case in detail. Each scheme’s liabilities are ultimately backed by the taxpayer, but the extent of pre-funding varies greatly, which is a critical factor in assessing the true pension deficit facing the UK public sector.