31 March 2006
Councils in Scotland face continuing increases in pension fund contributions to meet a liability that has grown to £4.5bn, Audit Scotland has warned.
In a report published this week, the public sector watchdog said councils' contributions as employers increased from 220% of employees' contributions in 2002/03 to 250% in 2005/06 – and will need to rise further.
'This is an area of continuing concern that will place additional pressure on resources,' Audit Scotland stated.
According to the report, which gives an overview of local authority audits, the £4.5bn net pension fund liability of Scottish councils at March 31, 2005, compares with £1.9bn in the previous year.
The report noted that, in common with all pension schemes, greater life expectancy means that pensions are paid over longer periods.
Pointing out that a full valuation of each of the pension funds is expected to be reported in March 2006, Audit Scotland said this was likely to result in further increases in contributions, which councils would have to fund.
The pension liabilities disclosed in police and fire authority accounts increased by around 31% in 2004/05 to £6.1bn for the police and £1.6bn for fire authorities.
The body representing councils, the Convention of Scottish Local Authorities, denied that the £4.5bn liability figure meant a crisis. A spokesman stressed that the increase was due to the change in the way assets are valued.
'It can look alarmist but councils would be faced with paying out £4.5bn only in the impossible situation of everyone retiring from local government at the same time,' he added.
The report disclosed that the financial reserves of councils stood at £1.1bn at March 31, 2005, compared with £1bn for the previous year.
Of the general reserves fund of £449m, £241m was unallocated and the report said this appeared reasonable in light of the financial pressures councils face.
The report called on councils to increase their pace of change and improvement at a time when they face major challenges.
Alastair MacNish, chair of the Accounts Commission, the body responsible for local authority audit, said it was essential councils focused on Best Value and worked more effectively with partners.
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