Public purse hit by £600m pensions shortfall

Published on Saturday 7 March 2009 20:32

THE amount of public cash poured into Scottish council workers' pension schemes has soared and is predicted to hit £600m annually by 2011, Scotland on Sunday can reveal.

Tumbling stock market values mean councils are having to find an extra 20m every year for the next three years to top up the final salary pensions of councillors and local government staff.

About 1 in every 5 raised by council tax north of the border is now spent boosting the pensions of local authority staff and fears are growing that services may have to be cut to meet the growing bill.

Councils that historically paid around 12% of workers' salaries into gold-plated pension deals are being forced to increase the contributions to as much as 20%.

The revelations are likely to anger many private sector workers who receive employers' contributions in the region of 5% and who have seen many final salary pension schemes ditched in recent years.

Councils have contributed to staff pension schemes – which exclude teachers and firefighters – for years but figures obtained by Scotland on Sunday under Freedom of Information legislation shows that burden hit 538m in 2007-08 on the funds, which exclude teachers and firemen, but include civil servants and councillors themselves.

Pension fund bosses in charge of the 11 local government funds across Scotland will reveal later this month that those costs will have to rise still further, after a review of their funds by actuaries revealed huge black holes in their balance sheet.

Tough rules on public pension funds mean assets must be able to meet liabilities, leaving bosses with nowhere to go when stock markets tumble other than pay in more cash.

The biggest of Scotland's 11 local government pension schemes, Strathclyde, will increase its own employer contributions from 17.3% of salary this year to 19.3% in 2011. The Lothian Pension Scheme, the country's second largest, is expected to announce this week that it will increase its contributions to over 20% of workers' salaries.

The increases come despite claims by Scottish Ministers that new pension arrangements due next month would reduce employer contributions to an average of 13%. Ministers admitted last night that there would be a "short-term" increase which they blamed on "poor global investment performance".

Councils were at pains to stress last night that the extra burden of the pension funds will not result in increases in council tax. But it will mean that funds which would otherwise be spent on services and schools will be diverted.

But Matthew Taylor of the Taxpayers' Alliance said: "This can't be sustained. All the pension funds are having massive trouble in their returns. ."

A spokesman for the Confederation of Scottish Local Authorities (CoSLA) said: "The main point is that these funds are managed and they are managed well. There will be no impact on the council tax payer as councils have once again not put up council tax at all."

A spokesman for the Scottish Government said: "The Local Government pension scheme ... must ensure there are sufficient contributions from scheme members, employers and investment returns to meet current and future pension costs. To do so, in the face of poor global investment performance, employer contributions have been increased in the short term."

• Council by council figures on employer contributions to the local government pension scheme for the last two years