Cash-strapped councils to cut gold-plated pension contributions
Cash-strapped councils will pay less towards gold-plated pensions next year in a move that could save ratepayers millions, experts say.
Almost £1 in every £4 raised in council tax is currently spent on funding the generous schemes, with some local authorities forced to contribute more than a quarter of workers' salaries.
However, the level of contributions required will fall for most local authorities from next April, according to actuary firm Hyman Roberts.
A 2pc cut would save Birmingham City Council, which effectively filed for bankruptcy 18 months ago, almost £3m a year.
It comes as council tax was hiked by an average of 5pc for the new financial year, with almost half of properties in England now facing bills of at least £2,000.
Council retirees receive a guaranteed income for life, which rises each year with inflation.
Their pensions are part of the Local Government Pension Scheme, which has more than six million members from a range of employers in 86 locally administered funds.
Funds are valued every three years before employers are told how much they must pay towards pensions, with the next round across England and Wales currently in progress.
Local authority budgets have been crippled by rising costs in recent years, but the average contribution was still 21.1pc of pay at the previous 2022 valuation – and some councils pay considerably more.
Birmingham City Council currently pays contributions worth 27.2pc of salaries at a cost of over £142m a year – despite being forced to make £150m in cuts elsewhere.
Speaking at the Local Government Chronicle's Investment Seminar, Robert Bilton, whose firm Hymans Robertson worked on around a third of valuations in the latest round, said: 'Pretty much all the local authorities are seeing a reduction in contributions.
'The Local Government Pension Scheme was in a really strong funding position at 2022, and nothing that has happened since then has really diminished that.
'Employers that are paying a relatively lower range will see a relatively smaller reduction, maybe 1pc of pay per annum for the next three-year cycle, whereas it's much larger for the employers who are paying higher rates.'
The Local Government Pension Scheme was judged to have an overall surplus of £22.1bn at its 2022 valuation, but 26 schemes still didn't have enough money to pay their pensions long term.
According to pension consultants Isio, however, the surplus had grown to £85bn by January this year. Just four schemes remained in deficit, opening the door for a reduction in contributions from April 2026.
Joe Dabrowski, of the Pensions and Lifetime Savings Association, said he expected the strong funding position to lead to reduced employer contributions in many funds.
He said: 'Obviously that might free up more cash for councils, which will then have more scope within their wider budgets to use the money for something else.
'Local authorities have been under pressure on their budgets because of increased demands, whether it's social care, reduced central grants or other things. This could be a shot in the arm for budgets for the time being.'
More than 7,600 retired council workers receive pensions of more than £50,000 a year, an investigation by The Telegraph found. A final decision on pension contributions is expected later this year.
The Local Government Association was approached for comment.
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