My initial response to the suggestion by Gary Simmons (News, March 27—April 2) that the local government pension scheme should become unfunded (pay as you go) was incredulity. Was this an early April Fools’ joke?
Funding spreads pensions costs over the lifetime of schemes. Pay as you go dangerously back-ends cost — the expense of the fire and police schemes are a classic case in point.
The strength of local government’s financial covenant enables scheme trustees to take the long view and to invest strategically through the peaks and troughs of economic cycles. Actuarial valuations are no more than a snapshot of the financial position and misleading, as most of the pension liabilities will not crystallise for many years. Doomsters calculate huge deficits on the basis of the short-term closure of schemes.
Local government pension schemes are typically cash positive, paying pensions from contributions. So their scheme members are best served by trustees who keep their nerve; invest for the future; do not crystallise actuarial deficits by switching between asset classes when the terms of trade are unfavourable; and understand that deficits emerge and thus might be cleared over the long term.
It is a pity they didn’t apply similar logic to surpluses in the past but we all make mistakes and hopefully learn from them.
David Adams, Watford, Hertfordshire
