Pensions timebomb for councils

THOUSANDS of council staff across Norfolk could be forced to pay more into their pension pots or see their entitlements cut to meet the spiralling costs of their retirement plans.

Councils across Norfolk are facing multimillion-pound deficits in their pension funds- including a �57m shortfall at Great Yarmouth borough- because figures show that the cost of funding future retirements has spiralled in the last 12 months.

Longer life expectancy and poor performance on the stock market is largely being blamed for the worsening pensions picture, but it is sure to fuel the debate about whether the government needs to overhaul the system in the longer term.

Council leaders believe the situation is unsustainable and in June the coalition government asked former Labour minister Lord Hutton to review local government pension provision.

But union leaders warned that the snapshot should not be used to undermine the current system, including the provision of final- salary schemes, which some fear could be scrapped as part of any future shake-up.

Daniel Cox, leader of Norfolk County Council and chairman of the Norfolk Pension Fund, said that while the current situation could not continue, the liabilities were spread over many years and the picture could change again.

“I think there's a broad acceptance that it's financially unsustainable to carry on with the local government pension scheme in its current form,” Mr Cox said.

Simon Woodbridge, leader of Broadland District Council, warned the liabilities could also increase as councils were forced to shed staff as part of the looming public-sector funding cuts, meaning there were fewer people paying in.

“We've known for a long time that pension reform will have to happen,” Mr Woodbridge said. “It will have to be approached, particularly if we are going to have fewer people in the public sector.”

Norfolk County Council, the biggest employer in the county, which oversees funds for a raft of councils and other public bodies, is facing a �150m deficit in its �1.9bn pension pot because of liabilities totalling more than �2bn.

But district councils are among the hardest hit. Broadland District Council has seen its pension black hole increase from �37.5m to �62m in the last 12 months, but the authority is not alone. As well as Great Yarmouth Borough's shortfall, King's Lynn and West Norfolk has a �56.5m deficit.

And while the figures are a snapshot of the latest situation, some councils have been left technically insolvent because their pension deficit is greater than their net worth and some are looking at getting staff to pay more to help balance the books.

But Mr Cox insisted that there was no need to panic over the figures.

“In reality these liabilities are stretched over many years in to the future,” he added. “It's not as if the local authority is suddenly going to go bankrupt, in reality employers' and employees' contributions are a drop in the ocean.

“The approach the Hutton Review should be looking at is reducing liabilities, that could be done through a number of mechanisms such as reducing future benefits and extending the retirement age. I don't believe it's right to ask employees to pay more.”

Jonathan Dunning, from Norfolk Unison said the Norfolk pension scheme was in a healthy state compared to some other parts of the country.

“On paper it can look like quite a worrying figure, but the reality is it doesn't give us cause for concern,” Mr Dunning added: “Nationally the Tories seem to have the perception that the public sector pension is generous, but the average payment for a woman is under �3,000 and the average payout is �4,000. The payouts that people receive from the local government pension scheme cannot be called 'gold-plated' when they are at that sort of level.”

Paul Brittain, head of finance at Norfolk County Council, said it was essential to take a long-term view of pension funding. “Any decision to change employees' contributions or the benefit structure of the Local Government Pension Scheme (LGPS) will be made by central Government, as is always the case, following the findings of Lord Hutton's report,” he said.

“It's essential we take a long-term view of pension funding, particularly in the current economic climate, we must remember that the time horizon for the payment some of these pensions may be more than 80 years from now. “The fund's trustees, and their professional advisors, carefully monitor the fund to ensure that, as far as possible, returns are optimised and risks are managed. However, the fund faces many challenges, including increased life expectancy and an ageing population, an increasing regulatory burden, volatile investment markets, changes in the composition and needs of the workforce and a financial environment when all our participating employers are facing serious budget pressures.”