Concerns over councils’ mounting pension deficits
CONCERNS have been expressed about mounting pension deficits at some Welsh councils, partly caused by a reduction in contributions because of the significant fall in local government jobs in recent years.
At Caerphilly, the deficit leapt from £503m to £630m between 201718 and 2018-19, in Cardiff it rose from £591m to £648m and in Carmarthenshire the deficit went up from £321m to £380m.
A note to Caerphilly council’s accounts states: “The deficit on the local government scheme will be made good by increased contributions over the remaining working life of employees, as assessed by the scheme actuary [an expert in pension finances who calculates the level of contributions needed to keep schemes afloat].
A note to Cardiff council’s accounts says: “The debit balance on the pensions reserve shows a substantial shortfall in the benefits earned by past and current employees and the resources the council has set aside to meet them.”
Carmarthenshire County Council’s accounts for 2018-19 state: “The
total net liability of £380m has a substantial impact on the net worth of the authority, as revealed in the balance sheet.”
Caerphilly Independent councillor Graham Simmonds, who has been questioning the rise in the pension deficit at his own local authority, said: “I find the rising pension deficit extremely worrying. We can’t go on year after year adding to the deficit, as we have been.
“All it means is that taxpayers have to pay more and more as the years go by to keep the scheme afloat.
“There doesn’t seem to be anything like a deficit reduction plan in place – I find it all very complacent.”
A spokeswoman for Caerphilly council said: “The council is required along with all other local authorities to report its pension deficit in its financial statements.
“The calculation of the deficit is complex and significant changes are not untypical due to revised assumptions made by actuaries, including anticipated returns on investments and changes in numerous factors in respect of future liabilities.
“Pension funds are subject to a detailed review by an independent actuary on a three-yearly basis and it is this review which determines any increases in the cash contributions that local authorities are required to make.
“Any such increases will be reflected in the medium-term financial plans for each authority.
“It is also important to note that our annual financial statements are subject to detailed audit by our external auditors and that the accounts have consistently been approved on an annual basis with no significant issues arising.”
A spokesman for the Welsh Local Government Association said: “Almost all authorities run pension deficits as liabilities exceed assets.
“The amount of the deficit will change based on actual and assumed returns on the assets held by pension funds, which are subject to the strength of capital markets.
“Liabilities, or future pension commitments, are dependent on wide ranging actuarial assumptions which are reviewed annually and can have a big impact on the deficit.
“Disclosure rules mean that employers must report on actuarial gains and losses in their financial statements.
“There is only ever a budgetary implication if employer contributions have to rise on the back of the triennial valuation of the Local Government Pension Schemes (LGPS), which are undertaken by independent actuaries.
“Caerphilly council is a member of the Greater Gwent (Torfaen) Pension Scheme and the latest triennial valuation is currently underway, with the results expected later this year.
“Any financial implications arising from this will need to be reflected in future financial plans for those authorities that are part of the pension scheme.
“From April 2014 the LGPS became a ‘career average revalued earnings’ scheme. The benefits built up since April 2014 will be based on a career average salary basis.
“The benefits members built before April 2014 are protected under the final salary calculation.”
IT’S a dry subject but one that needs to be taken seriously. The mounting pension fund deficits at many local authorities are the inevitable consequence of austerity policies that have greatly reduced the size of the workforce.
With pensioners living longer, and with fewer employees available to make the regular contributions to the pension funds that are needed to discharge their liabilities, there is no wonder that deficits are growing.
The default position taken by many local authorities appears to be that rising deficits are OK because all they need do is increase employers’ contributions when told to do so by the actuaries who advise on the finances of the pension funds.
If councils were awash with money, that might be an acceptable option.
But they are not, and it isn’t. Across Wales local authorities have been forced to make serious cuts in services because of the austerity policies of the UK Government.
Many would take the view that the cuts have represented an ideological assault on the public sector.
What has certainly happened is that young people have been robbed of job opportunities as spending cuts have shut down many posts that used to be passed on to the next generation as older workers retired.
Reducing the public sector workforce has resulted in a situation where despite a sizeable increase in the overall number of jobs, there has actually been a reduction in the amount of income tax collected in Wales over the last decade – as a report from Cardiff University’s Wales Governance Centre demonstrated this week.
The way to make local authority pension schemes more solvent would be to reverse the cuts and employ more workers.
That would deliver a boost to the Welsh economy, with more people in relatively well-paid jobs.
It would also ensure that more employees were making contributions to pension funds, reducing the deficits and relieving the constant pressure on councils to make up shortfalls.
But will this be possible? Almost certainly not if we are landed with a no-deal Brexit that would cause serious damage to the economy, reducing the tax revenue that enables public services and everything related to them to be financed.
The significance of what happens in Westminster in the autumn cannot be overestimated.