The UK’s local authorities’ pension schemes face a combined total funding shortfall of up to £30bn (€43.7bn), according to an actuarial valuation by the Chartered Institute of Public Finance and Accountancy.
Funding ratios for the Local Government Pension Scheme (LGPS), a public service final salary scheme with assets of around £90bn, has been found to be just under 73.06% of its liabilities.
The study, conducted by Helen Kilpatrick, also says it is not an “immediate crisis in any sense”. Kilpatrick is chair of the CIPFA Pensions Panel and director of Resources & County Treasurer for West Sussex County Council.
The study reveals that the LGPS, which are managed by authorities, including county councils and London boroughs, has seen a gap open up between assets and liabilities, in a similar way to other public and private sector schemes.
Employer contributions by authorities will have to go up an average of 4% of payroll – from an average of 15.7% to 18.3%. The change is be phased in with increases of between 1% to 1.5% next year.
Kilpatrick said that West Sussex County Council’s employer contributions will go up by about 1% of payroll a year for the next three years – triggering about a half of a percent per annum increase in local council tax.
Shropshire, one of the two authorities with the highest funding levels (83%) will have to increase its 8% contribution to 14.2% and has four years to adjust, the study says.
It will take an average of 21 years for pension funds to tackle their deficit, ranging from the Isle of Wight’s nine years to the 25 years estimated for Worcestershire, Warwickshire and Somerset.
The study says that for each year that implementation of these changes is put off, it will cost about 1.5% to 2% of payroll, about £300m a year in employer contributions.
“Whereas this is obviously a significant fall in funding levels, it must be emphasised it is not an immediate crisis in any sense,” CIPFA said, pointing out that current funding levels are in line with objectives laid out by the former Conservative government.
Funding, however, “is some way below the current long-term aim of 100%” and local authorities will have to increase their council tax to foot the bill.
The abolition of the rule allowing employees whose age and career history equal 85 years to retire, no matter what age, is also to be kept, pending consultations.