07 December 2001
Grant Ballantine, GAD's directing actuary, has acknowledged that English and Welsh authorities whose pension liabilities far outweigh their assets may have to raise tax revenue to cover shortfalls 'in extreme circumstances'. He added that some authorities 'do have heavy liabilities'.
This comes in the wake of a new accounting standard that will serve to highlight the extent of all public sector pension liabilities, which comes into force in 2003/04.
The new standard will require pension managers – including those controlling 'unfunded' plans such as the NHS scheme – to list their assets and liabilities on an annual balance sheet in the same way as the private sector.
Although many local authorities will be unaffected by Financial Reporting Standard 17 (FRS 17), fears have emerged about its knock-on effect on schemes that lag behind the rest of the industry in balancing assets and liabilities.
Local authorities with shortfalls are currently required to make up the difference in one year. As some are still suffering from the Conservative government's decision to allow a 75% funding level following the introduction of the poll tax, a senior pensions source told Public Finance that certain schemes – including at least one Welsh authority – 'would be likely victims'.
Under current law, the scheme's management would be required to increase assets by almost 40% of its value in one year – leaving few options beyond raising taxes.
Ballantine added: 'Although council taxes could rise in order to cover these costs, this has not proved an insuperable problem so far.'
CIPFA and the Accounting Standards Board have, however, anticipated difficulties and discussed a plan of action with the Treasury. CIPFA has suggested two possible courses of action – to allow it to introduce further accounting changes to regulate the system, or for the government to legislate for councils to meet their commitments over a longer period of time.
CIPFA's technical manager, Kieran Rix, said: 'Liability difficulties will not result from the introduction of FRS 17, but it will certainly highlight the extent of the problem. We may see a change to the requirement for managers to make up shortfalls in one year.'
PFdec2001
