09 November 2001
Early responses to the current round of triennial actuarial reviews of English and Welsh local government pension plans indicate that investment returns over the past three years have been very poor and will leave some schemes underfunded.
This means that contributions from employees and councils may not be enough to keep pace with pension payouts.
Actuaries who responded to Public Finance indicated that the average investment return for the three-year period to March 2001 will be around 14–15%, far lower than expected, while the performance spread is likely to be 5–22%, much wider than anticipated.
Following the last round of reviews, the government announced that pension schemes with shortfalls, such as Surrey County Council, could be shored up with money from capital receipts, such as council house sales.
But the Department for Transport, Local Government and the Regions has ruled out a similar use of funds this year. A DTLR spokeswoman said: 'We have no plans to allow the expanded use of capital receipts for pension funds in the wake of this year's reviews. It was a one-off decision last time around and we are told the figures will be very positive this year.'
However, the DTLR's confidence is in stark contrast to actuarial responses.
Consultancy Watson Wyatt estimates that its clients' average return was around 14% – significantly lower than anticipated.
Chris Chadwick, a partner at the firm, said: 'We also expect the average additional employer contribution to be around 2.5%, which is far higher than predicted and is a consequence of the poor economic conditions of the past two years. The government should not rule out a contingency plan for using capital receipts.'
Chris Hull of consultancy William Mercer added: 'All local government funds are finding growing cost pressures as a consequence of the current economic conditions.'
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