By Vivienne Russell
Shifting the Local Government Pension Scheme on to an unfunded basis could take some of the pressure off council finance managers, Public Finance has been told.
Gary Simmons, local government partner at PricewaterhouseCoopers, said the state of the LGPS was ‘not a pretty financial sight’. PwC estimates showed that, as of December 2008, local government pension schemes in the UK could fund only 66% of their liabilities. When reviewed using typical actuarial assumptions applied in the private sector, they were only 57% funded.
PwC has calculated that were this state of affairs to continue until 2011, it would require between £3.5bn and £6bn a year in extra contributions for 20 years to fund the deficit – equivalent to a 15%–30% council tax increase.
‘Local government is coming into a perfect storm,’ Simmons told PF. ‘Councils’ income from discretionary revenues is falling at a time when their expenditure is going up.’
‘It’s a difficult environment for them, plus you’ve got something like this [pensions deficit] which is quite substantial.’
Simmons said it was time for an ‘open debate’ about what could be done to address the pensions problem in local government.
‘Why do we have a funded scheme anyway in local government when the rest of government is on a pay-as-you-go basis? Would the same model work in local government?
‘How can we expect our local government managers to be able to manage the risks of this financial behemoth as well as everything else they’ve go to do? Their cousins in the health and teaching pensions schemes don’t have to… It’s not too difficult to imagine an unfunded scheme.’
The local government pension issue flared up again on March 22 when independent pensions consultant John Ralfe said the LGPS as a whole faced a deficit of £100bn. He criticised the government for not being accurate or transparent about the underlying numbers.
‘Neither individual local authorities nor central government recognise the size of the real LGPS deficit, and thus have no plan to address it,’ he said.
But local government minister John Healey said the LGPS could not be compared against private sector schemes.
‘It’s like a football pundit trying to commentate on a rugby game,’ he said.
‘Government policy does not allow deficit costs to be passed directly onto council tax payers, whose costs were recently capped to give extra protection. The scheme remains solvent, carefully guarded against risk with a fair and affordable standard of pension for taxpayers, employers and staff.’
