Trump prevents cash-strapped councils from cutting gold-plated pensions

Telegraph

17-04-2025

Cash-strapped councils are facing new seven-figure shortfalls after their hopes of cutting pension costs were dashed by Donald Trump.
Local authorities currently spend almost a quarter of council tax revenue on funding the generous schemes, but many were banking on slashing contributions from 2026.
Some councils could have saved around £3m a year with a 2pc cut, but John Ralfe, a pensions consultant, said a combination of poor investment decisions and market losses from Donald Trump's tariff war may have ended their chances.
It comes as households across the country face an average 5pc council tax hike, with thousands now facing bills in excess of £5,000.
Council workers are part of the Local Government Pension Scheme, which provides retirees with an inflation-linked income for life. Local authorities pay in a fixed percentage of employees' salaries, set independently by their scheme's three-yearly valuation.
Currently, they contribute an average of 21.1pc, costing almost £7bn a year.
There are 19 councils that paid in more than £50m last year alone, and three that contributed over £100m.
Overall, the Local Government Pension Scheme had £22.1bn surplus at its 2022 valuation, which rose to £85bn this year, according to pension consultants Isio – fuelling hope that contributions could be reduced during valuations this year.
The move could have saved some councils millions of pounds a year, but Mr Ralfe said Donald Trump's global tariffs and the ensuing market chaos may now have ended their chances.
He said: 'The Local Government Pension Scheme has around £400bn in assets, three quarters of which are in equities. These are subject to market volatility, but strong recent performance meant many funds were heading for a very promising surplus this year.
'However, that was the time to move from equities to something less volatile and lock those surpluses in. The fall in equity markets of the last few days, especially in the US where the majority of the scheme's equities are held, will have hit them hard.
'As a result, most funds will now be back in deficit and the chance has gone.
'This isn't just 'bean counting'. Some local councils were relying on a long term surplus to reduce their annual pension contributions, which is now much less likely to happen.'
Clare Moffat, of Royal London, said: 'At the last valuation, many schemes were in surplus and where that was still the case, one of the options would have been to reduce employer contributions.
'However, in the aftermath of Donald Trump's tariff war and its effect on the stock market, the chances of that could now be slimmer depending on the type of investments they have.
'A reduction in pension contributions would have been helpful for struggling councils, but this is only one of the options available when there is a surplus and it can never be relied upon.'
A spokesman from the Local Government Pension Scheme said: 'In recent years investment returns have been very directly impacted by a number of global political and economic factors.
'Despite that, over the longer term investors have consistently managed to outperform inflation and meet their investment goals. They do so by taking a long-term view and maintaining an appropriately diversified portfolio of assets.'