For many in the private sector our council tac is huge and because of low income, the 4% of band earnings paid through auto-enrolment may be less than the proportion of council tax that is paid into the LGPS fund.
Tom McPhail is quite right to point out that Council Tax is artificially high to pay on average a 16% employer’s contribution to support the Local Government Pension.
People struggle to pay household bills while LGPS runs an immense surplus. It is not as if the LGPS members run the risk of having pensions clipped if Councils go bus, the pensions are guaranteed to be paid in full. The tax-payer is the insurer of last resort.
There are many proposals in play to spend the healthy surplus to reflate parts of our society which have no money but the simplest way to do it is to cut the cost of pensions to participating employers and let them do their jobs – which have social importance to Britain.
Here’s Tom. You can read the original in the Times on this link.
This pensions windfall should be driving councils to cut taxes
It’s time that local authority pensions became less generous — especially when we are the ones footing the bill
The local government pension schemes are the best, and also the worst, of the UK’s public sector pension schemes. They are helping to perpetrate an injustice on council tax payers up and down the country.
To their credit, they are at least funded (unlike most public sector schemes), holding a pool of about £400 billion to pay out members’ benefits. So they are not racking up unfunded promises that the taxpayers of the future will have to satisfy. They’re the nearest thing we have to a sovereign wealth fund and they do make investment decisions that pay some regard to their impact on local communities and their economic needs.
However, they are funded from council tax, which rises inexorably every year despite the fact that many local authority pension schemes have a healthy surplus of cash to meet their future liabilities. The schemes cover about 6.9 million members, of whom 2.2 million are active employees.
There is not one single scheme but many regional variations in funding levels and contribution rates. Different schemes have pooled their investments into six mega-funds, which manage the assets for all the local authority employers around the country.
Most of these schemes are in surplus, typically with assets of 25 per cent or more in excess of what they need to meet their liabilities. This is a sharp turnaround compared with a few years ago. As interest rates have risen, particularly since 2022 and the infamous mini-budget, so the value of future liabilities has dropped. That means most of these schemes now have more than enough money to meet their liabilities.
Despite the surpluses, many local authorities continue to pay generous contributions to their employees’ schemes. The cost of these contributions comes from a local authority’s budget, funded in no small part by the council taxes paid by their residents. In response to the improved funding position, councils have been cutting their payments into the pension schemes, albeit from a high base.
Over the past few years councils have dropped their employer pension contributions from an average of 21.3 per cent of salaries to 16.6 per cent. Meanwhile, council tax continues to rise.
According to the last council tax review in March, 274 out of 384 authorities increased their council tax by the maximum (which for many means 4.99 per cent) and the average increase for a Band D property was 4.9 per cent. As a ballpark figure, about 15 per cent of that council tax is going directly to fund these already well-funded pension schemes.
There’s something deeply unfair about local authorities increasing taxes on their residents while paying generous employer contributions to pension schemes that have healthy surpluses. For comparison, a resident of one of these authorities working for a private sector employer could expect a pension contribution of about 6 per cent of earnings. Someone on the auto-enrolment minimum would get 3 per cent of earnings between £6,240 and £50,270.
Defenders of the local government pension schemes argue that many local authority pensioners get relatively modest incomes. The average pensioner payment is £5,500 a year because many former employees worked part-time, only briefly or in relatively low-paid jobs.
But to put this in context, for someone earning £40,000 a year in a full-time private sector job getting the auto-enrolment minimum pension contribution, it would take 20 years to build up a pot big enough to pay a similar level of retirement income.
Council tax payers should not be funding guaranteed defined benefit pensions for public servants when they have no opportunity to build similar pensions for themselves. Local authorities should be using the present advantageous funding position of these schemes to close them off and switch to defined contribution schemes for future benefits.
If they were to pay contributions at the same average rate they are paying today — 16 per cent of salary — it would still be a far more generous proposition than anything available in the private sector. More importantly, it would close off the risk of contribution rates ever having to rise again in the future, something most council tax payers would welcome.
Tom McPhail is a pensions commentator with 40 years’ experience across the industry
But not DC for LGPS please Tom!
As Tom and every regular reader of this blog will expect, I am violently against the loss of a pension to the British workers who are accruing an LGPS pension . There are not 6.9m as that figure includes those who are getting a pension paid to them and those who await an LGPS pension but are not working for an LGPS participating employer. But there are still a high proportion running into millions who are building up a pension quite effeciently.
It could be argued that LGPS could move to CDC in time and that may happen eventually, but it will only be when CDC has become settled in. We are talking decades and not years and will require union support that is still firmly behind DB.
The immediate task is to get a fairer balance between the council tax-payer and the council worker. As my partner reminds me, she pays more into the LGPS through her council tax than she does into her personal pension. That is untenable when LGPS is overfunded.
As usual with The Times, this is a briefing about England & Wales only.
The Northern Ireland LGPS is one pension fund, rather than the multiple funds operating in Scotland and England/Wales. The Northern Ireland Government’s actuary specifically notes that their LGPS is “substantially different” because it consists of only one pension fund.
Due to the healthy surplus and overall fund health in the 2025 triennial, many local employers there have seen a noticeable reduction in their primary and deficit contribution rates. For instance, typical base employer contribution schedules have shifted downwards toward an average of 15.5% of pensionable pay for the 2026/27, 2027/28, and 2028/29 fiscal periods.
In Scotland, the largest LGPS,
Strathclyde Pension Fund, for example, cut its employer contribution rate from 19.3% to 6.5% from April 2025.
http://www.gov.scot/publications/scottish-local-government-finance-statistics-2024-25/pages/6–pensions/
Tom’s wrong about attacking the provision of a pension.
But he is right about the contributions being set at unaffordably and unnecessarily high levels.
I’m a big fan of the concept of the LGPS, but the LGPSs (E&W) have brought this upon themselves – they’ve been a law unto themselves for a long time, stripping value out of local authority employers, local employers and employers just because they could. An example of poor governance and unchallenged executive actions in the Administering Authorities running amok and actually damaging the employers and communities they should be supporting, to the extent they’ll break their own pension system.
All pension system must act symbiotically with the economy they serve, not just extractive or parasitically.
“As usual with The Times, this is a briefing about England & Wales only.”
I’m so old that I can remember when The Times didn’t cover much outside the triangle London-Oxford-Cambridge.