Council tax bills are capped by Government so if the cost of services exceeds the defined contribution from council tax payers, a local authority can only cut services. In this argument. I argue that rather than bring down council tax bills, the £245bn surplus in LGPS should be used to fund the projects that councils cannot pay for.
Council paid pension contributions are part of “the cost of services” that councils have to declare to those who pay council tax , right now they average between 14 and 18% of payroll and those costs are ultimately born by council tax-payers.
So there is considerable resentment from the private sector ( and the national press) about such payments – this from the Telegraph
Council tax funnelled into gold-plated pensions as services crumble
Skint local authorities hand workers inflation-linked income for life as services crumble
You don’t have to be a finance director to see that pension schemes holding surpluses are rather less of a priority than keeping council facilities open.
Pension contributions accelerate to meet deficits and decline when schemes are in surplus.
Employee pension contributions , which are tiered in LGPS so that the more you earn, the more you pay, are still a substantial cost to the low paid ( I am happy to say – those earning under £13,500pa will get the equivalent of tax relief on this year’s contributions (but may not have in years gone by)
These contributions come out of pay and if they are reduced, they increase take-home .
I have heard it argued that LGPS is an unnecessary burden on the general and council tax-payer and yet I know several people at my church who have opted out of it because they cannot afford the contributions (even under the 50/50 arrangement).
Pensions do not operate in a vacuum, they have real-world cost implications to ordinary people.
PwC pensions partner Gareth Henty is right to tell Professional Pensions that he is not yet seeing the same trend towards using pensions surpluses to meet costs in the funded public sector schemes, such as the LGPS, and questioned whether this would change in future.
“The LGPS has built up a significant surplus over the last couple of years, which has yet to be used in any meaningful way to subsidise council’s costs and reduce the pension contribution burden on council workers.
“Contributions are not due to be formally recalculated until the next triennial valuation in 2025, and any changes would only be effective from 2026. It will be interesting to see whether well-funded local government schemes will follow the private sector in reducing (or even stopping) contributions – particularly given budget constraints among local authorities.”
PWC estimate that the surplus assets in occupational schemes as at April is £245bn. A substantial proportion of this will be in the LGPS. The consultancy INEOS reckons that in aggregate, LGPS has funds of £400bn with surplus funding of £24bn over liabilities.
We might ask why there is such a surplus and we should be reminded that while LGPS has had the benefit of rising gilt yields on liability valuations, they generally did not invested in leveraged LDI plans and have for many years benefited from the diverse returns of private assets which it holds to a much greater degree than either private sector DB or DC plans.
In short, LGPS has become rich by investing for growth. These riches are from the people and should be for the people, they should subsidise reward, by reducing member contributions and should pay for the services that otherwise will not be provided , so long as council tax bills are capped.
It is time for pension schemes to give back to their regional communities.