Magazine article Public Finance

Town Hall Pension Liabilities Soar to £30Bn

Magazine article Public Finance

Town Hall Pension Liabilities Soar to £30Bn

Article excerpt

The mounting problems facing council pension schemes were starkly illustrated this week when it emerged that local taxes might need to cover £24bn of new retirement liabilities from 2006.

Some council pension funds, such as those administered by Kent County Council, already have deficits of almost £1bn. That cash will have to be raised either through local taxes, larger government grants, improved stock market returns or higher employee contributions.

A study of Local Government Pension Scheme liabilities, published by CIPFA on April 7, estimates total pension fund deficits across town halls to be around £30bn, following actuarial valuations in 2004. That represents a £24bn hike in deficits since 2001.

No council in England and Wales has yet reported a surplus in pension fund assets during 2004 and local government finance experts this week warned that there would be an impact on local taxes.

Helen Kilpatrick, director of resources and county treasurer at West Sussex County Council, said that council contributions to LGPS funds would have to increase from 15.6% of council payrolls to 19.5% over the next few years to cover liabilities.

'West Sussex County Council's employer contributions will have to go up by about 1% of payroll a year for the next three years. A 1% per annum increase in employer contributions translates into about half a percent per annum increase in council tax for us,' said Kilpatrick, who is also chair of the CIPFA Pensions Panel.

Confirmation that town hall pensions require a huge injection of cash was untimely for the government. Deputy Prime Minister John Prescott recently suspended plans to ease the scheme's costs by increasing the pension age by five years.

Prescott acted to avoid strikes over the issue by local government workers, but the extent of new liabilities in the sector could force ministers to continue with the changes after the general election.

The results of the actuarial valuation show that the average LGPS scheme now holds assets equivalent to just 73% of its total liabilities, compared with 90% in 2001. The government has set a target to return schemes to 100% funding, but increasing life expectancy rates for town hall employees, six years of poor investment returns and council resource pressures means many authorities have been unable to move towards this. …

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