Plymouth City Council pension fund is £331million short
TAXPAYERS in Plymouth could be forced to pick up the bill for a massive £331million black hole in the generous council workers' pension fund.
A combination of new legislation and poor performance on the stock market drove up the city council's pension fund deficit by an astonishing £133million in a year, and council workers themselves now face the threat of radical changes to the terms of their pension schemes.
Plymouth City Council has to pay 19.4 per cent of wages into the pension fund, which is administered by Devon County Council – and a review due next April could force the council to increase its contributions.
With the Government grant to councils likely to be slashed, any increase would have to be funded by savings or higher council taxes, admitted Cllr Ian Bowyer, the city's Cabinet member for budget and finance.
"The burden of meeting pension commitments is very onerous," he said.
A council spokesman said the growth in the deficit was largely due to the fall in the stock market and a change in legislation which meant that pension funds now had to be fully funded.
The increase in contributions needed to bring the fund up to the 100 per cent level is being phased in, which means contributions need to rise each year.
"A lot of work is taking place to reduce the deficit and it is expected to decrease as the stock market picks up," he said.
The next three-yearly review of the city's pension fund by an independent actuary will be published in April next year and will seek to cut the deficit.
The council spokesman said: "We'll be doing everything we can to minimise the impact on the revenue budget."
According to figures from the Office for National Statistics this month, only 12 per cent of private-sector staff were still paying into traditional final-salary schemes last year.
In 2008 the average private- sector employer contributed 14.6 per cent of salaries to their open final-salary schemes and just six per cent for defined contribution schemes.
"It wouldn't surprise me if some moves were made to try to ensure that the costs are more directly related to contributions," Mr Bowyer said.
"That might mean some of the terms of the pension scheme might be changed.
"Fortunately, it's not a decision I have to take. Councils have to pay the bill, but the calculations are taken out of our hands."
Although only about 15 per cent of Plymouth's revenue come directly from local taxpayers, Mr Bowyer admitted that any increase next year could fall entirely on Plymouth residents.
"I'm expecting to have a cut in the rate support grant from the Government," he said.
"We need a sensible and rational debate about what services councils provide, and how we provide them.
"It may well be a combination of seeking to increase income by charging for more areas where we haven't, stopping some services that aren't a high priority and delivering some services with our partners," he added.
Mr Bowyer said there were no plans to introduce wheelie- bin tags and charge for waste collection, as some councils were planning.
"I'm not comfortable with that; it has the smack of Big Brother about it," he said.
"I don't think people in this city would take very kindly to it."
The public-sector union Unite rejected calls by the Taxpayers' Alliance for pensions reform.
It said public-sector pensions were self-funding. The money needed was covered by employer and employee contributions, and the scheme was not asking for bail-outs from the Government.
Sums don't add up
PLYMOUTH'S pensions black hole falls somewhere in the middle rank of a
combined pension deficit of £53billion in 2008-09 for councils across
the country. This is up by about £8billion, or 27 per cent, in a year,
according to the Taxpayers' Alliance.
Plymouth's deficit was about £197million in 2007-08, rising to £331million in 2008-09, an increase of £133million.
Liabilities rose from £651million to £593million while assets fell from £395million to £321million.
The value of council pension assets fell by more than £21billion during 2008-09, a loss of 20 per cent on the previous year.
Devon County Council had the 10th highest deficit in 2007-08 and
2008-09 rising from £373million to £586million. This put the county at
number six in the list of the biggest increases.
46 Comments
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by Comrade Beria, Moscow, USSR
Tuesday, March 09 2010, 6:12PM
“Some good points, but getting the public to pay the difference should be utter illegal, who would pay my pension fund if it was shortfalled? YOU? I doubt it.”
by TS, Plymouth
Tuesday, March 09 2010, 4:22PM
“Phil,
I agree entirely with what you are saying about the cost of Final Salary schemes, and the likelyhood is that, even public sector pension schemes will need to change in the future.
My argument is not with this, but with the those people out there, that are just blinded by inaccurate and sensational headlines like this. Too many, rather than provide accurate reasons, like you last post, are just saying that, ' if my pension has been reduced why shouldn't everyone else's'.
Most of the posts here are just an attack on the Council (who has no control over the pension fund) and public sector workers, who, apart from those above a certain level (as in all industries) do not get a big pension and it certainly is not the 'gold plated pensions' which some national newspapers lead you to think.
Thank you for a thought out and accurate posting.”
by Phil, Mutley
Tuesday, March 09 2010, 1:52PM
“TS - clearly we are not going to agree, but the reason that "final salary" type pension arrangements are becoming largely extinct in the private sector is that they are too costly to employers and the risk is all with them.
My own employer withdrew its final salary scheme in 1992 and probably saw the writing on the wall earlier than most. They have subsequently confirmed that it would have been nigh on impossible to attract new partners (and therefore investment) to the firm with the old pension scheme in place. These are the commercial realities in the private sector.
The public sector has largely stuck with final salary schemes. Yes, I know they are less attractive then they were - retirement age 65 not 60, more expensive etc, but there is still not enough money to sustain schemes like this as the local scheme's shortfall demonstrates. Sadly, the reality is that virtually all pensions will become "defined contribution" types and not "defined benefit" very soon. The latter type is just too expensive and open-ended for any employer, private or public.
In an ideal world, we would all have really good pensions that would pay out a guaranteed level of income in retirement. Sadly, the truth is that nobody (employer or employer) is willing/able to meet the true cost. Hence those of us below the age of 55 will probably end up working until 70 at least to be able to afford to retire. This is the reality most of us already face, the cost of shieldiing a minority of the workforce from this reality is only just beginning to dawn.”
by Anne, Plymouth
Tuesday, March 09 2010, 9:58AM
“Correct me if I am wrong, but if you buy something and the price goes up, surely you pay extra or decide to take less. I'm at a loss as to why this benefit for those workers is anyone's problem but their own? You want a better pay out, you pay more. You don't, then you accept less. Why is it anything to do with those not getting it at all?”
by TS, Plymouth
Tuesday, March 09 2010, 7:21AM
“Phil,
I think you are missing the point and have just proved mine. You, like almost everyone on here is attacking the public sector workers
instead of attacking the private sector for their attack on the pensions, just for profit. I work in the pensions industry and believe me when I say that the Public Sector workers (who are members of the Local Government Pension Scheme do not have a pension that is as good as most people think. Yes it is certainly better than a lot out there, but no where near those of the 'Fat Cats'. I know someone personally in the Public Sector and in 2008 the LGPS regulations were changed to save money. This person now has to pay more and has to work 5 years longer than previously or lose a third of their pension hey have paid for, so these benefits are also being eroded the same as other pension schemes, but not quite as drastic, yet.
Would you all please stop blaming Plymouth City Council for this problem, yes, they may be useless, waste money, but this is nothing to do with them, please, let's discuss, argue etc on this topic, but do it based on facts, not just because you hate the council.
Everyone on here is saying that they are not paying council tax to pay for these 'great pensions, just based on a newspaper headline, which fails, along with all other attacks on these pensions, to tell you that you are paying for all pensions anyway, whether via income tax or other stealth taxes that the Government have brought in.
You should also be aware that while the staff in the Local Government Pension Scheme may seem to have this 'great pension', they are still in a worse pension scheme than other public sector workers, who don't even have an actual 'pension fund' that money gets paid into.
Once again, we should be fighting for a decent level of pension for everyone in retirement, not trying to bring everyone 'down' to the lowest level.”