TaxPayers’ Alliance report on public sector pensions criticised

The TaxPayers’ Alliance (TPA) has claimed that local authorities across the UK had a combined pension deficit of £54 billion in 2010/11 and that the average ratio of assets to liabilities is 70%. In its report, The true cost of the Local Government Pension Scheme, the TPA said Birmingham City Council has a deficit of £1.3 billion, 14 local authorities have a deficit of over £500 million and 165 local authorities have deficits over £100 million. It said the lowest funding ratio is 42% at the London Borough of Brent and 26 local authorities have a funding ratio below 60%.

However, the TPA’s findings have been criticised by actuaries and consultants Barnett Waddingham and the trade union UNISON. Barnett Waddingham partner, Graeme Muir, said: “Firstly, the (accounting) basis of measurement of deficits quoted by the TPA is flawed in that these deficits would only be meaningful if all Local Government Pension Scheme (LGPS) Funds invested all their assets in bonds. However, funds are long term investors, and can afford to take a longer term view and invest in assets that are expected to produce higher returns in the long term.”

Muir added: “Funds are a bit behind schedule in terms of their funding journey for many different and historical reasons but have been, and continue to make up time by going a little bit faster to catch up. We don’t need, nor is it usually possible, to catch up immediately as there is still a long journey ahead.”

In its response UNISON said that the report wrongly argued that £1 of every £5 of council tax goes towards local government pensions. In its comment on the report, UNISON head of local government, Heather Wakefield, said: “The actual figure is just 5p in every £1 paid in council tax, because council tax makes up just 25% of a council’s overall funding. The remaining 75% comes from other sources such as business rates and central government funding.”

Wakefield added: “It is pure fantasy to claim that there is a ‘black hole’ as if everyone in the scheme will retire on the same day. Any actuary worth their salt will confirm that with pensions it is vital to take a long-term view. Let’s not forget that the average pension in local government is not at all gold plated. It is just £4,000 a year, dropping to £2,600 for women.”