The bloated quango with a £1.7bn pensions bill – paid for by the taxpayer

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01-03-2025

Taxpayers have been handed an eight-figure bill for a gold-plated government pension scheme that cannot afford its payments, new figures show.
The Environment Agency's closed pension fund has taken £1.25bn in government bailouts and needs almost £400m more, according to a Freedom of Information request by The Telegraph.
The scheme still holds £264m in assets, but has lost £65m through investments in the past two years alone. The taxpayer has funded every pension payment made in the past 19 years.
In the late 1980s, Britain's state-run water industry employed 50,000 workers, and their pensions were held in the Water Authorities Superannuation Fund. After privatisation in 1989, staff and their pensions were transferred to the newly-formed National Rivers Authority and private water companies.
All remaining pensions, for those who had either already retired or left to work elsewhere, were moved into a closed fund. The Government and the National Rivers Authority accepted that the fund might one day be unable to meet its obligations, but every pension was also legally guaranteed by the state.
When the Environment Agency was created in 1996, it took over managing the scheme, and by the scheme's 2004 valuation, it had a deficit of £880m.
The former environment secretary, Margaret Beckett, duly contacted the scheme to confirm it would run out of money by autumn of 2006, and that the Department for Environment, Food and Rural Affairs would fully fund pensions from April the same year.
The arrangement cost the taxpayer £91m in 2006-07, and has required an average of £69.5m a year in funding ever since.
Neil Record, a pensions expert and former Bank of England economist, said it was a glaring example of 'both waste and protecting public sector workers at the expense of ordinary taxpayers.'
He said: 'A whole panoply of scheme compliance and administration is effectively being wasted because the Government has chosen to bail out the failing scheme with cash every year – leaving the pension scheme as onlooker.
'Were it in the private sector, the same scheme would fall into the Pension Protection Fund, and the pensioners would see a fall in their pensions – sharing the costs of the bailout.
'It is a microcosm of everything that is wrong with public sector culture.'
The generous scheme, which is part of the Local Government Pension Scheme, provides retirees with a pension worth one 80th of their final salary for every year worked, along with an automatic tax-free lump sum of three times their annual entitlement.
It means a worker retiring on £50,000 after a 30-year career would receive £18,750 a year, rising annually with inflation, and a one-off lump sum of £56,000.
Almost 8,800 pensioners are currently being paid by the scheme, with nearly 600 more yet to claim. It cost the taxpayer £42m in 2023-24.
Meanwhile, the Environment Agency's multi-billion pound open scheme, run separately for current workers, made a profit of £369m during the same period.
Across the two schemes combined, there are 103 members with annual pensions in excess of £50,000, and two members receiving more than £100,000.
An Environment Agency spokesman said: 'The Closed Fund pension has outperformed its benchmark on investment returns, and grant-in-aid payments are used to ensure we meet our statutory obligation to fund members' pensions.
'It is managed according to the high standards of financial integrity expected of those responsible for the management of public assets.'
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