Public sector pensions hole grows

ENGLAND’S public sector pension scheme may be underfunded by £100bn, research claimed yesterday.

Unions reacted with fury to claims that the Local Government Pension Scheme’s deficit in England has more than doubled from £42m in 2007, and is now just 57 per cent funded compared with 74 per cent three years ago.

Councils’ £5.8bn annual taxpayer contributions to the LGPS now barely cover new pension pledges, the research by independent pension consultant John Ralfe found.

They would need to increase contributions by £4bn a year to plug the gap over the next 25 years – even after cutting £20bn from the deficit to account for pension rises being valued by CPI and not RPI, it said.

Ralfe said the debate just repeated that held in the private sector a decade ago. “I feel we are in a time warp,” he told City A.M. “The difference is that in the private sector companies realised defined benefit schemes were very costly and very risky, so took steps to address that.”

Ralfe’s data showed that the scheme’s asset value rose just eight per cent from 2007, to £132bn, while liabilities soared 41 per cent to £232bn.

The LGPS also has an average asset allocation of 70 per cent equities, which Ralfe said left taxpayers severely exposed to the risk of a shortfall.

“If equities perform spectacularly over the next few years, OK, but what if they don’t? It is absolutely clear that local councils don’t have a risk management strategy or a Plan B if it goes wrong,” he said.

But Bob Summers, chair of the Chartered Institute of Public Finance and Accountancy’s pension panel said there was “potential for some very highly misleading information.”