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England’s cash-strapped city halls are anticipated to chop the quantity they pay in direction of employees pensions after a dramatic enchancment in scheme funding ranges.
The £391bn Native Authorities Pension Scheme in England and Wales is in surplus by £85bn, in line with calculations by pension marketing consultant Isio.
The estimate compares with official figures of a £22bn surplus in 2022 and a deficit of £6bn in 2019. The change has been pushed by an increase in company and authorities borrowing prices, which has pushed up anticipated returns for pension schemes.
LGPS funds conduct valuation workouts that decide how a lot councils pay in each three years. The following one is that this spring, with any modifications to contribution charges because of come into pressure in April 2026.
“The market circumstances because the final valuation have modified massively,” stated Tim Gilbert, companion at Lane Clark and Peacock consultants. “That helps a big discount within the contribution charges . . . a discount of fifty per cent or so is justifiable given the change of the circumstances.”
Employer contributions to the LGPS in England and Wales quantity to about £8bn a yr, together with some non-council employers, the equal of shut to six per cent of the full budgets of native authorities. The typical employer contribution price is 21 per cent of employees salaries.
“Given the funding pressures on councils it’s enormous,” Gilbert stated. The core spending energy of English councils in 2024-25 is eighteen% decrease in actual phrases than 2010-11 ranges, in line with the Particular Curiosity Group of Municipal Authorities, which represents native authorities.
Birmingham metropolis council, for instance, which is in impact bankrupt, pays an employer contribution price of about 27 per cent into the West Midlands Pensions Fund, which had a funding degree of 116 per cent at its newest valuation in 2022.
Some Scottish councils have already slashed their pension contribution charges as their triennial valuation operates a yr aside from England and Wales. The newest was in 2023.
Nonetheless, some consultants have warned LGPS funds to train decrease contribution charges with warning, because the funds may swing into deficit if market circumstances change. The LGPS has about half of its belongings in equities.
“Deficits can reappear, significantly if you’re in a scenario the place you might be carrying important funding threat and there’s no hedging in place. Market circumstances change. In 2016 everybody was considering how will we be capable of shut this gap on various funds?” stated Mark Jennings, companion at PwC.
