Reforming the Local Government Pension Scheme

Published on Friday, 13 April 2012 10:00
Posted by Robert Oxley

Despite the perilous nature of our finances and the UK’s ageing population; our politicians, councils and union leaders cannot continue to stick their heads in the ground and ignore the pressing need for reform of the Local Government Pension Scheme

New research from the TaxPayers’ Alliance has shown that the deficit of all the local government pension schemes across the UK is a staggering £54 billion. Birmingham City Council alone, the largest local authority in the country, has pension deficit of over a billion pounds while London town hall pension schemes face a £9 billion deficit, one sixth of the overall deficit across the UK.

If you believe the vested interests that are the unions, you might think that there is nothing wrong with every one of the 101 council pension funds in the UK containing significantly larger liabilities than they do assets. In fact some council pension funds have assets that cover less than a half of their liabilities. It is no wonder then that the OECD have described the scheme as "severely underfunded". Local Government Pension Schemes have become unaffordable and, as a result unsustainable.  They need urgent reform.

We are leaving future generations of taxpayers to pay for public sector pensions.  The former Chief Executive of the Audit Commission, Eugene Sullivan, warned against backing down from reform, describing putting IT off as “deferring the inevitable” and the equivalent of “not paying your mortgage”. Those claiming there is nothing to see here are lying to the public.

Unions and councils resist any scrutiny, hoping to avoid uncomfortable but necessary reforms. They will claim the pensions are already under control, or that we only have a snapshot of the system. Both are wrong, they must explain how they would pay for the £54 billion deficit in the LGPS. Even moderate pension reforms in the public sector have been ardently opposed by Union bosses. Moderate reforms must take place otherwise an unsustainable burden would be placed on taxpayers shoulders. 

There are only three ways that the LGPS deficit can be reduced. Local Authorities can hope that the value of their assets will increase (to some extent they have, but they are still in a worse position than they were two years ago), but more money will almost certainly have to be paid into the scheme by someone. With taxpayers feeling the pinch, as they subsidise retirement deals that they themselves cannot afford, the onus must be on making the scheme more affordable, with those who benefit paying more of the cost of that generous provision.

The LGPS provides a generous retirement deal for public sector workers who already enjoy far better pay and conditions than their private sector counterparts. Despite what some may claim, even after many other factors are taken into account there is, according to the office of National Statistics, an 8 per cent public sector pay premium. Therefore to ensure these generous retirement deals are sustainable in the long run it is only reasonable to ask those who enjoy them to pay a little bit extra. Otherwise taxpayers will be the ones left footing a £54 billion they can ill afford.

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