Local government pension holders face ‘£100bn deficit’

The Local Government Pension Scheme’s deficit may have more than doubled from £42bn to £100bn in the last three years, a report suggests.

John Ralfe, an independent pension consultant, analysed the published accounts of 60 of the 81 local authorities in England which administer the scheme.

His report concluded that although the total assets stood at £132bn in March 2010, liabilities had increased by more than 40% to £232bn. This means the scheme has a deficit of £100bn, the report suggested, compared to a deficit of £42bn in March 2007.

“Because individual local authorities do not, at least publicly, recognise the real LGPS deficit, they have no plan to address it, other than keeping their fingers crossed and hoping the massive equity bet will pay off,” said Ralfe. “Meanwhile future taxpayers are underwriting this equity bet and will have to pay the deficit through lower services or higher taxes.”

However, the findings were brought into question by unions such as Unite, which said the analysis was based on a “back-of-an-envelope calculation”.

Gail Cartmail, assistant general secretary for public services at Unite, said Ralfe’s report was “mathematically flawed and intellectually misleading”, while Heather Wakefield, head of local government at Unison, insisted the local government pension scheme was in good shape.

“A report out this year confirmed that the scheme could cover all its liabilities for the next twenty years, without a single penny more in contributions. What’s more, the scheme invests hundreds of billions in UK stocks and shares every year – a huge boost to our economy,” she said.

In a separate development, Unite, Unison and the GMB warned that many of the scheme’s four million members might withdraw from the scheme if planned increases to employee contributions go ahead.

The unions attacked proposals for a blanket increase of three percentage points in employee contributions outlined in the
government’s comprehensive spending review earlier this year. The Treasury said this would cover an additional £1.8bn each year that was needed.

In a joint submission to Lord Hutton’s Independent Public Service Pensions Commission, Heather Wakefield said: “We urge Lord Hutton and the government to think again and recognise the value of the scheme in keeping skilled and experienced workers in public services.”

Most social workers are on the local government pension scheme. They contribute between 5.5% and 7.5% of their salary into pensions, with employers covering about 14% of the overall pay bill.

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