The bankruptcy of the city of Detroit is a scandal that has been largely caused by its huge pension debts, but every time I read about it I can't help but draw comparisons with the UK public sector pension scheme.
There will be lots of people that disagree with me and of course it's not directly comparable. Detroit filed for bankruptcy last month after realising that it could no longer shoulder its debt.
The Motor City, famed for its auto industry, had a population of 1.8 million and the highest per capita income in the US, but it has been reduced to a population of just 700,000 left in a decaying city.
The problem for Detroit was its $3.5 billion of pension obligations, mostly private sector in the form of the city's General Retirement System and its Fire Retirement System. It then owed a further $1.6 billion to the bank for providing a buffer for other pension obligations.
The problem has got so great that the city's talks with the unions have broken down as the former does not have enough money to offer the latter even a half decent deal on their members' pensions.
Surprise, surprise the pension is defined benefit, not defined contribution. As people lived longer, benefits increased, costs increased but there were fewer people in Detroit paying in – sound familiar?
Our own public sector pension problem is not anywhere near the level of that faced by Detroit but we should see it is a warning from the future. Figures from pension expert Michael Johnson show that the cost of public sector pensions is set to rise 77-fold over the next 11 years to £15.4 billion, this eye-watering sum should be enough to concern anyone.
Add to that the fact that we are living longer, fewer people are paying into the defined benefit public sector pension scheme and you have what is tantamount to a huge Ponzi scheme, and we all know what eventually happens to Ponzi schemes – they blow up.
When the government is shelling out more money to retired public servants than it is bringing in, there will be something that has to give. The government has already planned some cuts to public sector pensions but I believe it will have to go further to reduce benefits or extend working lives.
If it doesn't then the prospect of a Detroit-style meltdown may become a reality.
The famous faces of bankruptcy
Should Detroit's pension problems be a warning to the UK?
In 1895 at the height of his success following the publication of The Picture of Dorian Gray and The Importance of Being Earnest, Wilde was charged with gross indecency and became embroiled in a libel trial to defend himself against accusations of homosexuality. He lost the battle and was forced into bankruptcy to cover legal costs for himself and the accuser, the Marquis of Queensberry – whose son Wilde was allegedly having an affair with. According to TrueTV.com, some of Oscar's most prized possessions, including first editions of his own books, were seized and sold at auction to pay the bill.
In a lesson that personal net worth means nothing against spiraling debts, the King of Pop filed for filed for bankruptcy in 2007 when he couldn't repay a $25 million loan on his home, Neverland Ranch.
Despite being recognised as the most successful entertainer of all time by the Guinness Book of World Records, Neverland became Jackson's downfall – reportedly costing more than $10 million dollars a year to maintain. According to Moneycrashers.com, even after signing a nearly $1 billion recording contract in 1991 and selling more than 750 million records, Jackson had just 0.05% of his net worth in accessible cash, which left bankruptcy the only option.
Actress Kim Basinger filed for bankruptcy in 1993 after she was sued for breach of contract for refusing to appear in film Boxing Helena, which later bombed. The actress lost a $8.1 million lawsuit to Main Line Pictures as a result and was forced to sell her $20 million investment in the town of Braselton, Georgia, USA.
When Mozart died at the early age of only 35 in 1791, he was poverty stricken and left vast amount of debt behind, which totaled over 4,000 florins (the equivalent of more than eight times the annual salary of a middle-class government employee, according to Noiseaddicts.com). Reports prevail that there was such little money in the house at the time of his death that Mozart was buried in a mass grave, the exact location of which is unknown to this day.
Everyone's favourite crooner filed for bankruptcy in 1976 after the royalties from his next album were promised to his ex-wife as a substitute for maintenance payments. The album was titled "Here, My Dear."
Despite creating one of the best-selling albums of all-time with Bat out of hell, Meat Loaf had to file for bankruptcy in 1983, after a series of bad business deals and legal issues. The rock star fell victim to unscrupulous managers, who he discovered were stealing his money – only for them then to sue him for breach of contract. Just when it looked like his luck was improving ahead of the release of his album Blind Before I Stop – the producer put a dance beat on every track, alienating his rock fanbase, making the album a failure and forcing him into bankruptcy for a second time.
Just when things couldn't get any worse for ex-Atomic Kitten Kerry Katona, she's been made bankrupt twice in five years.
The first was in 2008 after failing to deliver the final £82,000 of a £417,000 tax bill.
She was in the press for money issues again this earlier this year when a a TV advert for pay day loans fronted by Katona was banned for being irresponsible. Cash Lady offers loans of up to £300 a month with an annual percentage rate of 2,760%. "We've all had money troubles at some point, I know I have," says Katona in the TV ad. "You could see your bank and fill in loads of forms, but is there an easier way to get a loan ... it's dead fast too. Fast cash for fast lives."
However, Katona was dropped as the face of a payday lending company after filing for bankruptcy for a second time.
She filed for bankruptcy at Wigan County Court in July 2013, the Insolvency Service confirmed.
Disney's fist animation company Laugh-O-Gram Studio filed for bankruptcy in 1922 when its financial baker went broke. Disney was no longer able to pay his employees or his debts, and according to Totalbankruptcy.com, even struggled to buy a bus ticket to Hollywood. But he made it and there he made a fresh start with his new self-named production company that remains a worldwide success today.
Despite earning millions during his boxing career, former world heavyweight boxing champion Mike Tyson was forced to file for bankruptcy in 2003. He mounted about $27 million in bills, and is said to have squandered nearly $300m in ring earnings through lavish spending and bad advice, according to BBC News. The 37-year-old spent extravagantly on mansions, Bentley cars, jewellery, and even pet Bengal tigers while buying expensive gifts for his large entourage. Also in 2003, Tyson agreed to pay his ex-wife $6.5m from future earnings as part of a divorce settlement.
Drinking, gambling, fast cars and womanizing saw football wonder boy Best squander his cash and succumb to bankruptcy in 1982 with debts of £22,000. According to Bankruptuk.co.uk, at the time of his death in 2006, Best had an outstanding mortgage of £100,000 and owed London's Cromwell hospital £300,000 in treatment fees.