A not so small issue with the “success” of the LGPS pension scheme.

John M Clancy, a truculent actuary acting on behalf of council tax payers has unturned surplus funds to pay Manchester, Wigan and most particularly Makerfield council workers- their pensions.

Is this a blunder or a feature of the Local Government Pension Scheme?

To have your pension covered as LGPS council workers (and affiliates) are covered is pleasant for them and unpleasant for council tax payers, many of whom struggle to meet their bills. Manchester is well run and the issue is not as apparent as Birmingham where the West Midlands  section of LGPS is similarly “over-funded”.

All LGPS employers have had to pay in substantial amounts when the scheme was in deficit last decade. It was not till October 2022 that the tide turned and liability valuations and the long term growth of assets created the surpluses of today.

Clancy has got hold of numbers (albeit due an update) that shows that Burnham’s Manchester has a collective surplus in its part of LGPS which breaks down like this

Makerfield is in Wigan. Clancy estimates that were this surplus paid back to council tax payers , they would receive £4,000 each as a rebate. Of course it won’t be, but £4,000 is more than most workers have paid into their pension in a year, it’s more than some workers have in their workplace pension.

There’s only a few days left to the election and I don’t know if John Clancy’s blog will be read by the other party to Burnham’s seriously contending in the forthcoming by-election.

The wild swing from worrying deficit to embarrassing surplus, isn’t helped for the Government by the costs incurred to manage LGPS, something that Reform has been pointing to .

Imagine the political ammunition that Reform could make of John Clancy’s estimation of the financial impact sorting out the surplus could have locally to those in Wigan and Makerfield.

If the surplus is £10.4 billion this year (please ask what it is, Andy) then Greater Manchester’s 2.3 million adults are owed almost £4,000 each by the Tameside Council-run Greater Manchester Pension Fund, after deducting the National Probation Service section.

105,000 of them live in Makerfield, so the constituency’s adults are owed a whopping £420 million, and it could be more. That should be being spent in all Makerfield’s primary and secondary schools and in its FE College, Wigan and Leigh College. It should be spent on policing, Fire and Rescue and transport.

In fact, Andy Burnham, in response to a question about making tough choices, made a point that he had made tough choices in relation to increasing the police precept higher than elsewhere in the country. Well, if he’d challenged the pension fund on behalf of the police he might not have had to. The police service is owed around £410 million from the surplus.

Wigan Council itself and its LEA-Maintained schools are owed almost £0.6 billion from the surplus.

Defined benefit schemes have long been called gold-plated and they are.  For council workers  and those others in LGPS ( there are also “smaller” multi-employer schemes like USS and Railpen) defined benefit provides certainty. But to sponsors (the employers) it provides uncertainty.

Clancy estimates that Manchester could have three years without paying a penny to LGPS and then a much reduced payment. Even if this happened , he estimates the scheme would still be in surplus. Kensington has already gone down this route. Later this month,  Pensions UK will have a conference where most LGPS officials will no doubt congratulate each other for the state of their scheme. I suspect the ones who won’t will have been elected under a Reform banner. Last year I blogged that LGPS would needs be a lot less complacent and more responsible for what Clancy calls “a blunder”.

There is of course an advantage to DB maintained by CDC. That advantage is that CDC cannot have a surplus or a deficit. It’s valuations must be at least once a year (more likely to be once a day) and surpluses will be passed on in improved pricing and improved increases in potential and actual payments. Likewise there will not be deficits, only less by way of increases in potential and actual payment in pension. UK CDC schemes do not hold buffers (they are not with-profits) they are pension schemes that operate over an infinite timescale. CDC is widely used abroad as an alternative to DB, perhaps LGPS should invite someone to its conferences to explain what it could learn from CDC’s abolition of surplus and deficit.