Council leaders call on minister to fund pensions
COUNCIL leaders in Wales fear their authorities could be tens of millions of pounds worse off from next year as a result of necessary funding increases to some public sector pension funds.
All 22 of them have written to Liz Truss, the Chief Secretary to the Treasury, expressing serious concern and urging her to ensure that increases in employers’ contributions to the Teachers’ Pension Scheme and other pension funds will be paid for by the UK Government.
The concerns come at a difficult time for councils in Wales, which overall are facing real-terms cuts of 1.8% to their budgets after inflation is taken into account.
Andrew Morgan, the Labour leader of Rhondda Cynon Taf Council, tweeted: “UK Government changes to the Teachers’ and Fire & Rescue Service pension funds will cost Welsh local authorities almost £80m a year extra, almost £5m off RCT council’s budget next year. All 22 council leaders have written to the UK Government as it’s for them to fund this!”
In their letter to Ms Truss, the council leaders state: “The Welsh Local Government Association (WLGA) Council met last week and discussed the implications for nonfunded pension schemes of the Treasury’s draft amending valuation directions.”
In non-funded or unfunded schemes, no contributions are made to the scheme in advance and no investment fund is built up. Instead the benefits are paid out by the employer when they fall due, alongside the salaries of current employees.
The council leaders’ letter states: “For teachers, we understand that the Government Actuary’s Department [responsible for assessing the level of contributions required to ensure public sector pension funds are adequately resourced] have now completed their calculations and have provided indicative results for the 2016 valuation of the Teachers’ Pension Scheme to the Department for Education (DfE).
“The change to the employer contribution rate will commence from September 1, 2019.”
The DfE handles the Teachers’ Pension Scheme for both Wales and England.
The letter goes on to state that the WLGA understands from its sister organisation in England that the current employer contribution rate of 16.48% will be increasing to 23.6% for the period September 1, 2019, until March 31, 2023.
It says: “In England there will be funding from the DfE for the financial year 2019-20 to help maintained schools and academies meet the additional costs resulting from the scheme valuation. A consultation process will take place to determine final funding arrangements.”
In a direct appeal to Ms Truss, the council leaders state: “As local government in Wales, which has responsibility for schools, we would urge you to follow your Statement of Funding policy, which requires that the UK Government funds any financial implications of its own policy changes.
“For teachers’ pensions, we estimate the part-year implication in 2019-20 as £41m and £71m in 2020-21. We are also responsible for funding the Fire and Rescue Services in Wales, and calculate the effect for 2019-20 as £6m. The funding of this needs to be addressed as a matter of urgency, as the budget cycle for the next financial year starts this week.”
The council leaders conclude by asking Ms Truss to fund other public sector pension fund increases in the same way, including those for civil servants and NHS staff.
Former Bridgend Council leader Jeff Jones, now a political consultant, said: “It’s highly unusual to see a letter of this kind written to a UK Government minister by every council leader in Wales, regardless of their party. It shows the level of concern.
“For a council leader like Andrew Morgan, already facing a cut in his allocation, to have an extra headache of a further bill for £5m is awful. It can only mean further cuts from the services the council has to provide today.
“This problem stems from the fact that public sector pension schemes are having to pay guaranteed pensions based on final salaries. Such schemes hardly exist any more in the private sector.
“People are living longer and the schemes are having to pay out pensions for longer. I’m a member of the Teachers’ Pension Scheme, and if I live as long as my father, I’ll receive my pension for 29 years.”
A spokesman for HM Treasury said: “Public sector pension valuations will be finalised later this year, but early indications are that workers will see improved benefits.
“We will apply the principles set out in the Statement of Funding to determine any additional funding for the Welsh Government.”
Rhondda Cynon Taf Council leader Andrew Morgan
Chief Secretary to the Treasury Liz Truss