Shortfall In Local Government Pension Scheme

30 Jul 2010

Today’s announcement of an estimated 75% funding level for the LGPS in England should remind people how these deficits arose

Responding to the Audit Commission report on the Local Government Pensions Scheme (LGPS) GMB welcomed the confirmation that the shortfall in the scheme relates to past service and actions of the last tory government.

The LGPS has been reformed to manage future service costs and past service deficits over the long term.  The LGPS is invested heavily in the UK economy and as such has suffered from falling investment returns in recent years like almost every other pension scheme in the country.  Reforms are in place to insulate the council taxpayer, who contributes about 5% of their Council Tax to the LGPS, from future cost volatility.  The deficits are largely due to employer underfunding in the past and do not indicate an unaffordable scheme.

Naomi Cooke, GMB‘s National Pensions Officer said, “Today’s announcement of an estimated 75% funding level for the LGPS in England should remind people how these deficits arose.  20 years ago the Tory government set 75% as the funding target for the scheme to allow councils to slash their contributions.  The result was that employees contributed more than employers and a cash flow deficit of £500m was built up in only two years.  The figures published by the Audit Commission today show that this money still hasn’t been made up.

Cutting the benefits of the scheme will not solve the deficits of past service.  If the government believes in the sustainability of local government then it should believe in the sustainability of the LGPS.  A deficit funding period of 40 or more years is perfectly prudent in the LGPS context and means no reactionary changes are needed in the short term.

Now cash rich, the LGPS has enough money put aside to pay all the benefits required for the next 20 years, in that time the employer cost of the scheme will come down and if the economy is managed sensibly, investment returns should improve.  The worst thing for the scheme and the taxpayer who has to pay for pensioner poverty would be an unnecessary attack on those who are saving for their retirement.”