Councils face paying millions extra to female staff pensions
Local authorities failed to re-evaluate retirement funds after equal-pay deals
CASH-STRAPPED local authorities have left themselves open to multimillion-pound liabilities because they failed to re-rate staff pensions when making equal-pay settlements.
Under changes made to Local Government Pension Scheme (LGPS) rules four years ago, such payouts must be factored in when calculating employees’ entitlement to retirement income because they represent backpay rather than compensation – as some councils had tried to argue.
However, so far only North Lanarkshire Council has taken action to comply with the rules after being ordered to do so by the Scottish Public Pensions Agency (SPPA) in 2016.
Having spent the past two years calculating how much it and the affected women would have to pay in backdated pension contributions, North Lanarkshire is now facing a bill of up to £8 million in order to meet its obligations. That equates to around six per cent of the £130m it has already paid out to settle equal-pay claims.
The affected women will have to pay an average of just over £700 each to backdate their own pension contributions, but could see the amount of retirement pay they are entitled to increase by thousands of pounds a year as a result.
It is understood that no other local authority has looked at the issue, despite the SPPA writing to all public sector bodies to draw their attention to the rule change in 2016.
In that letter the Scottish Government executive agency stressed that “equalisation legislation to compensate persons who have wrongly been underpaid would not deliver full compensation if the employees’ pensions did not reflect what the circumstances should have been had they received the correct pay in the first instance”.
That letter went to the secretary general of the Convention of Scottish Local Authorities (Cosla) and the chief executives of all 32 local authorities in addition to the bosses of agencies such as Visitscotland and Strathclyde Passenger Transport Authority.
Despite this, the SPPA said that it had not engaged with any other local authority over the pension issue and only became involved with North Lanarkshire because it had been consulted “as a result of an internal dispute resolution procedure appeal”.
A spokesman for Audit Scotland, which has oversight of all local authority spending, said the body did not know if any other council was looking to re-rate pensions for those it has either already settled with or is in the process of agreeing settlements with.
He added that the onus is on other councils to follow North Lanarkshire’s lead.
“There are highly complex issues around implementation of equal pay as our [2017 report Equal Pay in Scottish Councils] made clear and we will be monitoring progress on its recommendations,” he said.
“In the light of the SPPA ruling, local authorities must treat claims as back pay and therefore agree the pensionable elements with claimants as part of any settlement.”
A Cosla spokesman said it could not comment on settlements made by its member authorities, but added that “obviously, it is right and proper for councils to determine payments in accordance with the pension regulations and settlements on the basis of the timing of agreements and the applicable rules in place at that time”.
According to the Audit Scotland report, local authorities paid out a total of £750m between 2005 and 2016 to compensate mainly female workers who for years had been paid less than their male counterparts for work of equal value.
The figure is almost exactly equal to the reduction in council funding over the past five years. According to a report issued by the Scottish Parliament Information Centre last month, real-terms total funding for local authorities fell by 7.1 per cent – the equivalent of £744.7m – between 2013-14 and 2017-18.
The Audit Scotland report did not make clear how much of the equalpay total was paid out after the 2014 change to the pension regulations.
Meanwhile, the total sum paid out in settlements is expected to rise considerably because one-third of all claims filed – including all of Glasgow City Council’s – were still outstanding as at September 2017.
Glasgow, which is Scotland’s largest local authority and the second biggest in the UK after Birmingham City Council, is expected to have to pay hundreds of millions of pounds to settle with its equal-pay claimants, with some estimates putting the total bill at over £1 billion.
The lawyers and unions acting for the Glasgow claimants have confirmed that they will be demanding the council includes backdated pension contributions in its settlements.