By Lucy Phillips
The Local Government Pension Scheme is hiking up council costs and must be reformed before it becomes unsustainable, according to the Audit Commission.
Eugene Sullivan, chief executive of the local government spending watchdog, told Public Finance that while there was no immediate crisis, the scheme had to be dealt with. ‘The big issue is that at the moment employers are putting up their payroll costs by 5% in order to fund the current arrangements, which puts up costs of services and council tax,’ he said.
The LGPS is funded, unlike other schemes in the public sector, and has more than 4 million members in England and Wales. Problems have occurred recently because locally invested funds have failed to deliver expected returns, covering only about three-quarters of the scheme’s future liabilities.
Sullivan warned that allowing the growth of unfunded liabilities was ‘putting it off for future generations to pick up the tab – it’s just deferring the inevitable, like not paying your mortgage.’
His comments came as the commission published a report on local government pensions in England. It recommended ‘incremental’ changes rather than radical reform, which would be too costly in the short term. Proposals include raising employee contributions (tapering them according to earnings), currently set at 5.5%–7.5% of pay; raising the normal retirement age; and reducing the rate at which pension benefits are earned.
The report will inform Lord (John) Hutton’s review into the affordability of public sector pensions. The former Labour cabinet minister will produce his initial findings in September.
Sullivan also suggested ‘amalgamating’ some of the 79 separate pension funds across the country, questioning why something had not already been done about the 33 separate schemes in London.
The Local Government Association defended the current scheme, claiming that it was ‘well run’ and accounted for only about £1 in every £20 of council tax funds. Steve Bullock, chair of the group’s workforce board, said: ‘Town halls are determined to ensure their pensions are fair to taxpayers and employers as well as the staff who provide frontline services to millions of people.’
Unions have warned against more reforms to the pensions, following the 2008 changes, which included raised employee contributions.
The next official valuation of local government pension liabilities in England and Wales is due to be published in the autumn.
The Local Government Pension Scheme is hiking up council costs and must be reformed before it becomes unsustainable, according to the Audit Commission.
Eugene Sullivan, chief executive of the local government spending watchdog, told Public Finance that while there was no immediate crisis, the scheme had to be dealt with. ‘The big issue is that at the moment employers are putting up their payroll costs by 5% in order to fund the current arrangements, which puts up costs of services and council tax,’ he said.
The LGPS is funded, unlike other schemes in the public sector, and has more than 4 million members in England and Wales. Problems have occurred recently because locally invested funds have failed to deliver expected returns, covering only about three-quarters of the scheme’s future liabilities.
Sullivan warned that allowing the growth of unfunded liabilities was ‘putting it off for future generations to pick up the tab – it’s just deferring the inevitable, like not paying your mortgage.’
His comments came as the commission published a report on local government pensions in England. It recommended ‘incremental’ changes rather than radical reform, which would be too costly in the short term. Proposals include raising employee contributions (tapering them according to earnings), currently set at 5.5%–7.5% of pay; raising the normal retirement age; and reducing the rate at which pension benefits are earned.
The report will inform Lord (John) Hutton’s review into the affordability of public sector pensions. The former Labour cabinet minister will produce his initial findings in September.
Sullivan also suggested ‘amalgamating’ some of the 79 separate pension funds across the country, questioning why something had not already been done about the 33 separate schemes in London.
The Local Government Association defended the current scheme, claiming that it was ‘well run’ and accounted for only about £1 in every £20 of council tax funds. Steve Bullock, chair of the group’s workforce board, said: ‘Town halls are determined to ensure their pensions are fair to taxpayers and employers as well as the staff who provide frontline services to millions of people.’
Unions have warned against more reforms to the pensions, following the 2008 changes, which included raised employee contributions.
The next official valuation of local government pension liabilities in England and Wales is due to be published in the autumn.
