Council pensions have had an unfair press, says the local government minister. They are not excessive or ‘gold-plated’, and much of the criticism from politicians and commentators is simply unfounded
Local government pensions have been getting a lot of negative attention recently. Alongside false claims by so-called experts of a billion-pound funding black hole there has been an outcry over council workers getting gold-plated retirement pensions that many private sector careers no longer offer.
I want to nail these myths and set the record straight.
First, there are many hard-working, often low-paid, council staff who do frontline jobs for their community who deserve a fair day’s pay and a decent pension when they retire.
As local government minister, I promise to defend pensions for local council workers and I want to see an end to the ‘council catcalling’, which unfairly runs down the people who do so much to serve the public.
The average council pension is still only £4,000 a year, which is hardly excessive or gold-plated. This week I met lollipop man Dennis Skett, who has helped pupils at a Wigan primary school to cross the road for nine years. I don’t begrudge him a well-deserved pension and no other fair-minded person should either.
But we do need to hold councils to proper account. The public deserves to know exactly how their money is being spent. Pensions need to be fair and affordable for everyone. So it’s time we brought top council earners up to the same standard of pay disclosure as we now require, rightly, from civil servants and ministers.
I want the public to have the full picture about what their council chiefs earn, in pay, perks and pensions. That is why I have decided to legislate to make that information public. This will help stop the spiral of pay and payoffs and make councils think much harder about top pay decisions and their impact on frontline staff pensions.
New parliamentary legislation will also give people the power to petition their councils, so the public can directly challenge their authority and require a formal response if they feel pay packets are too generous.
Secondly, I want to tackle some common misconceptions being aired about the Local Government Pension Scheme.
The LGPS is very different legally and financially from private sector schemes, governed by different legislation and regulations. The scheme supports very different occupations and so it is reasonable to expect that the way pensions are provided and accounted for would be quite distinct as well.
Unlike most private sector schemes, where covering the cost of pension payments is dependent on a relatively short-term investment performance, the LGPS is sustained by actuarially-based employer and employee contributions. These cover the cost of pension benefits each year. Diversified investment portfolios cushion scheme funds, providing an additional reliable income stream that helps viability and covers administration costs.
In the main, local government pension funds are invested for long-term returns not short-term gains, with investment strategies looking over many decades. This means they can — and have over the years — offset any short-term market fluctuations and provide pension fund stability for employers, employees and taxpayers. These schemes, which have been going since the early 1900s, are the model of pension prudence.
In addition, the 89 funds are actuarially valued every three or so years to determine the right level of future employer contribution increases and to provide a professional assessment of their continued viability. As a result, those running local government schemes are not required annually to balance their accounting deficits and liabilities in the same way as private sector schemes.
Thirdly, every pension scheme, public or private, is facing new pressures with the global downturn and with baby boomers nearing retirement. The government is therefore already changing its pension rules to protect the interests of members, employers and taxpayers.
Employees now make higher contributions to their pensions, and employers’ costs, paid by the taxpayer, are capped by legislation, ensuring even greater standards of protection against new liabilities.
The collapse of the Icelandic banks and the Madoff scandal have also raised some concerns about where local authorities invest their pension funds. But, as our regulations legally require councils to maintain well-diversified portfolios, no scheme is overcommitted in any single investment type. And proper, qualified advice is required so that a prudent approach to managing and investing funds is taken at all times.
Whatever the unfounded criticism from some politicians and commentators, the LGPS remains solvent. It guards carefully against risk and provides a fair and affordable standard of pension benefits for taxpayers, employers and, most importantly, staff.
John Healey is the minister for local government
