What it will require for the UK to have more informed debate on pension policy options, Financial Times, 6 December 2005

Tanaka Business School Accounting Professor Paul Klumpes provides insight into current pensions policy debate

From Prof Paul Klumpes.

Sir, John Plender ("How policymakers divide and rule on pensions", November 28) claims that the fiscal strain associated with ageing populations "is not apparent except to a handful of pension buffs who grasp the arcane niceties of inter-generational accounting".

However, this observation only holds because of the democratic deficit in the UK government's unitary constitution, thus enabling politicians to substitute short-term political visibility for long-term generational visibility, and the lack of any resources of an authoritative accounting rulemaking body for the public sector.
By contrast, in the US, there is much more public awareness of this issue, since government is explicitly accountable to its citizenry for its finances under the constitution. This is because the US comptroller-general has regularly highlighted the inter-generational problems associated with unfunded government pension promises to both Congress and the public, and because of the existence of well-established, dedicated and active public-sector accounting rulemaking bodies that are actively developing a conceptual framework of government reporting (the Government Accounting Standards Board and the Federal Accounting Standards Advisory Board).

We will only ever have a more informed public debate of pension policy when we have a fair value-based system of budgeting and reporting, which, when combined with a statement of inter-generational equity, reveals the hidden obligations, private-finance initiative, public-private partnership and other inter-generationally sensitive financial guarantees of governments.

This information is not currently revealed under the partial accrual basis accounting system as implemented in the UK and in many other countries.

Paul Klumpes,
Professor of Accounting,
Tanaka Business School,
Imperial College London,
London SW7 2AZ