Taxpayers are facing an extra £37 billion bill because of a blow-out in the liabilities of the vast National Health Service Pension Scheme, which looks after an army of workers.

The liabilities of the scheme worsened from £128 billion to £165 billion during 2005-06, according to its newly published accounts.

Like most others in the public sector, the scheme is unfunded, meaning that it has made pension promises but that there is no money set aside and ringfenced to fulfill those promises. The liabilities increased, partly, because the scheme used a more realistic rate to discount future costs back to a notional present-day figure. But even after reducing the discount rate from 3.5 per cent to 2.8 per cent, the scheme is still understating the true liabilities, according to Watson Wyatt, the actuarial consultancy.

It said yesterday that if the scheme used the same assumptions made by sponsored pension funds in the private sector, the liabilities would be £28 billion greater, at £193 billion.

Stephen Yeo, a senior consultant at Watson Wyatt, said: “The Government claims to have adopted the same accounting disciplines as the private sector when accounting for pension liabilities but, by failing to allow for current market conditions, they are understating the pension liabilities for the NHS by billions of pounds.”

Private sector companies are now using a more conservative discount rate, typically as low as 2 per cent, to measure their liabilities.

The NHS scheme has 1.26 million active members, 360,000 deferred pensioners and 535,000 current pensioners. More than 73,700 doctors, nurses and other NHS workers joined the scheme last year.

Another reason for the increased liabilities was the use of more realistic assumptions on future unknowns, such as life expectancy, which has galloped ahead in recent years. These assumption changes alone added £4 billion to the total liabilities – equivalent to more than a penny on income tax for a year.

Watson Wyatt estimates that total unfunded liabilities of all public sector pension schemes, including those for civil servants, teachers and the Armed Forces, have ballooned to £960 billion.

The NHS scheme, which pays out a guaranteed percentage of final salary, is regarded as a key component of staff rewards. Staff contribute 5 per cent to 6 per cent of pay to the Exchequer for their pension rights. NHS employers contribute 14 per cent.

The accounts were qualified by Sir John Bourn, the Comptroller and Auditor-General, because they breached parliamentary rules on control of expenditure, he said.

Watson Wyatt said that the discount rate adjustment added £18.3 billion to liabilities, while the liability for a family doctor redundancy scheme, which was omitted in error from the accounts last year, added another £2.7 billion.

By numbers

1.26m active members

360,000 deferred members

535,000 members now drawing a pension

73,700 new joiners last year

659 participating health trusts

8,561 participating GP practices

£165bn in liabilities

Source NHS pension scheme

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