Councils' £1.5 billion pensions black hole (From Daily Echo)

Councils' £1.5 billion pensions black hole

5:10pm Thursday 23rd July 2009 in News Exclusive By Rachel Masker

Hampshire County Council

PLUNGING stock markets have helped create an estimated £1.5 billion black hole in the pensions scheme for Hampshire council workers, the Daily Echo can reveal.

The deficit has rocketed after nearly £700m was wiped off the value of investments and £7.1m lost in jailed fraudster Bernard Madoff ’s swindle in the past year.

More than 46,000 workers and 27,000 pensioners – including care workers, dinner ladies and town hall officials – belong to Hampshire Pension Fund.

County bosses have stressed any losses will not affect the retirement benefits paid to staff.

But councils may need to pump more taxpayers’ money into the local government pensions scheme if markets do not recover.

This will add to the £150m bill for pensions in 2008 already, equivalent to £215 for each of the county’s 700,000 households.

Nine council bosses have accumulated gold-plated pension pots worth more than £1m.

Figures from the last formal valuation in 2007 have already shown a £891m shortfall between assets and liabilities.

Now pensions chiefs have admitted the stock market slide since then will have increased the gap between what the fund is worth and what it will have to pay out in future.

The scheme includes staff who work for Hampshire County Council, 11 district councils, Southampton and Portsmouth Councils as well as civilian workers at the police and fire authorities.

County council annual accounts show its pensions deficit alone rocketed to £727.6m in 2008/9, compared with £440m the previous year – a rise of 65 per cent in one year.

County council employees account for just under half (45 per cent) of the total membership of the Hampshire Pension Fund.

This suggests the total pensions scheme deficit could have nearly doubled to £1.6 billion.

The next three-yearly formal valuation of the pension fund is due in March 2010.

Councillors on the pensions panel will then decide if employer contributions – the amount paid in largely by taxpayers – should rise further.

The pensions panel is responsible for making sure the fund can meet its current and future liabilities.

In a report to the panel, county treasurer Jon Pittam said: “As conditions currently stand following the global financial crisis, the pension fund’s position has worsened and it is possible that employer contributions rates will have to rise over the three years from 2011/12.”

When the last valuation showed a £891m deficit in 2007, pension chiefs hiked employer contributions to 18 per cent of an individual’s pay in 2009, rising to 19 per cent next year.

This means that a council employee on £25,000 will see £4,750 contributed to their fund from the taxpayer.

By comparison, staff pay an average 6.3 per cent of their pay toward their pension – a level set by Government.

Speaking at a meeting of the pension fund panel, chairman Councillor Mark Kemp-Gee, said if taxpayer contributions exceeded 20 per cent it could be a “psychological”

barrier and public relations might be an issue.

Cllr Kemp-Gee added he was hopeful the stock market will recover and the pension fund increase in value.

He said more money was currently flowing into the fund than paid out – and a surplus will continue at least ten years.

Mr Kemp-Gee said: “It is not necessarily a foregone conclusion that we will have to ask taxpayers for more contributions.We will wait for the valuation and respond to the advice of the Government actuary.”

Pension payments cost the county council £57.9m in 2008-9, up £6m on the previous year.

County officials say £30m came from central government funding, including business rates, £10m from fees and charges and £18m from council tax – a total of £58m.

But Mike Schofield, of anticouncil tax group IsItFair, said: “It is all taxpayers’ money. It doesn’t matter which pot it comes from. If Government funds are used to pay council pensions, that means less money for services which then have to be paid for with council tax.

“Taxpayers are already paying three times as much as employees for council pensions.

“It is just not right.”

The annual county council accounts does not calculate the Hampshire Pension Fund deficit for 2008, but does say the value of investments in the pension scheme plunged by £687m, reducing the value of the fund to £2.39 billion.

It also said there was £65m surplus of contributions over benefits paid in the year. In 2008/9 employers contributed £152.3m and employees £54.5m.

As a final salary scheme, Hampshire Pension Fund guarantees to pay a fixed retirement income based on length of service and earnings. Pension pots are not reduced by the fall in share prices.

While this is good news for council staff, it puts more pressure on the pension fund as share prices perform poorly and people live longer.

Most private companies have closed final salary schemes to new members because of the spiralling costs.

Council chiefs say the average pension last year, including parttime employees, was £3,900 a year.

In addition to the local authorities, staff from the University of Portsmouth and Southampton Solent University plus dozens of smaller bodies and charities are also included in the fund.

In 2007/8, some 46,220 people were paying into the scheme with 27,387 former workers already drawing a pension and 30,013 deferred pensioners.

■ Teachers belong to a separate pensions scheme run by the Department for Children, Schools and Families.

Pension payments for teachers at county council-run schools cost taxpayers £48.7m in 2008, according to the annual accounts.

Teacher pensions are funded by a Government grant except for early retirements when councils pick up part of the bill.

Employer contributions were 14 per cent of a teacher’s pay in 2008/9.