Feb 2008 28


Download Council Spending Uncovered No. 3: Pensions (PDF)

  • £1 in every £5 of council tax spent on local government pensions
  • 2006-07 saw a 13% rise on 2005-06
  • Average council spends £10 million a year on pensions
  • Total bill for Local Government pensions is £4.6 billion

The first two papers in the Council Spending Uncovered series – which investigates wasteful and frivolous town hall spending – revealed a £450 million local government publicity machine and that £1 in every £11 of council tax is spent on middle managers’ pay. This third paper examines local government spending on pension contributions, which again is recorded in the annual accounts of councils across the country. Those accounts reveal the shocking burden of gold-plated local government pensions, and detail both that spending and how it is growing for every council in the country.

Public sector pensions are of course a controversial topic, but one that must be urgently confronted in order to avoid a future crisis. Against a general climate of demographic change and pension funding concerns, public sector pensions are particularly an area of risk to taxpayers due to their extremely generous nature and often unfunded liabilities. Local Government pensions are no exception. Given that pensions are supposed to provide security for our future it is a worrying irony that, unless urgently reformed, public sector pensions pose a serious risk to our financial wellbeing.

To improve the situation, the TaxPayers’ Alliance calls: 1) for each council to cease the payment of added years benefits to staff who retire early; 2) for councils to collectively campaign for national reform of the pension scheme; 3) for Hazel Blears, Communities and Local Government Secretary, to reform the Local Government Pension Scheme.

Key findings

  • In 2006/07, the average local authority spent £10 million on pension contributions every year, which is a 13% rise on 2005/06.
  • The total bill for Local Government pensions is £4.6 billion a year.
  • £1 in every £5 of council tax is spent on pensions.

Andrew Allum, Chairman of the TaxPayers’ Alliance, said:

“It’s unacceptable that ordinary families and pensioners who struggle to pay inflated council tax bills see so much of their money spent on gold-plated council pensions that have all but disappeared in the wider economy.  With pension costs jumping 13 per cent in one year, the problem is clearly getting worse and requires urgent attention.  Councils should start correcting their own behaviour immediately, and the Government must face down union pressure and reform the outdated local government pensions scheme as soon as possible.”

It should be noted that:

- There has in the past been significant controversy over how much council tax is spent on pensions. Council tax is not the sole source of income for councils, nor is it earmarked for pensions, but all spending comes from the same pot – any savings made could be used to reduce council tax.

- The overall terms of the Local Government Pension Scheme are set by national Government, which is why we urge Hazel Blears to carry out radical reform of the scheme. That does not absolve councils from blame, however, as each has the opportunity to reign in their payments and to lobby the government for reform.

- Frustratingly for those who believe in accountability and transparency, local authority accounts can differ between councils and over time. That said, this is the most comprehensive and up to date study of the issue.

  • Ben

    Thank you once again to the TPA for making mountains out of mole hills. I pay 6%of my wages into my pension scheme there is nothing gold platted about the scheme which is easily balanced by other considerations.
    In addition – what alternative? hmm? I tell you what lets get rid of all taxes and let these hard working families test their resilience to simple matters like providing billions of £’s in services for themselves. Lets also start preparing to massacre any one who is elderly or disabled because of course they aren’t hard working enough.
    My job in local government is important I am part of a network that provides services to millions of people every day. I deserve the pension I earn. Stop trivialising everything based on tax – in addition if you do the maths how many council employees pay into their pension twice? We pay council tax as well you know.

  • frank

    To the commenter above – So the TPA is making a mountain out of a molehill eh!
    As a hard working self employed Tax payer, I resent the fact that the thousands of people to whowm I contribute pay through the council tax, have shorter hours, better pensions (I cant afford to make any contributions), Higher rates of sickness (bogus), Skive of work whenever they can (every day We can see the DLO parked up hour after hour in a layby with their flasks) and will retire far earlier than the rest of us mere mortals.
    The lunatics are running the assylum

  • Chris

    To the Local Government worker who pays 6% of his/her salary into the pension pot – WHO DO YOU THINK PAYS THE OTHER 14%!!!!!!!!!
    The ordinary Tax payer is getting fed up of services being cut when the pension cost keeps on increasing. The Pensions Regulator has recently stated how the fact people are continuing to live longer is making pensions even more expensive – Public sector pensions are not exempt from this increase and the burden will continue to fall on the ordinary tax payer.
    The ordinary tax payer can’t afford to pay for a good pension because of the increasing amounts of tax imposed on them. It is time Public sector employees realised we are all in this pensions crisis together and they must take their share of the pain also.

  • Alex

    I have always worked in the private sector and have never managed to secure a final salary pension. However recently I have being working for a few weeks in a local authority and it has been a real eye opener. The level of bureaucracy and the time wasted is astounding. There is no sense of urgency and yet they have high sickness levels because of the generous sick pay schemes.
    It is also a myth that public sector workers receive lower salaries than they would in the private sector.Most would never survive in the private sector.
    The unions claim the new pension scheme commencing in April means that employees will pay more into the scheme. Not so, the contribution depends on the level of salary and it will be about 6% on average. More importantly the new scheme will provide more generous benefits -it will be a 1/60th scheme instead of a 1/80th scheme. Who will be picking up the increased cost of these benefits – let me guess!

  • Antonio Lorusso

    Read this from Channel 4 News’ Fact Check analysis of the taxpayer’s alliance council pension report.
    The short version. The TaxPayers alliance’s £1 in £5 claim is based on the percentage of the pension scheme of council tax payments. However council’s income from council tax is only a fraction of their budget, the rest comes from central government taxes. The reality is that council’s spend roughly £1 in £25 on pensions, and that figure is set to get better with the pensions to be less “gold plated” in the future.
    For all of you who jumped on this bandwagon, maybe in future you should not trust your facts from someone who clearly has an agenda.

  • Geoffrey Dron

    Let’s accept, for the sake of argument, that Antonio Lorusso, who also has his agenda, is correct in his figures. It still means that an unacceptably high proportion of taxation, mainly raised directly or indirectly from the productive private sector, is going on public sector pensions.
    The issue of public sector retirement age must be addressed as soon as the next administration takes office in 2009/10. That means repudiating the deal which the unions forced on the Blair government.
    In addition, more privatisation of public services must take place with redundancies imposed in the public sector. The new private sector service providers won’t be providing public sector level pensions or retirement ages.

  • http://labourandcapital.blogspot.com Tom P

    The normal retirement age in the LGPS is 65, which is actually higher thna some private sector schemes. So what do you want it to be?
    According to stats from the Government Actuary, NAPF etc, private sector employers pay higher contributions than employer contributions to the LGPS. And private sector scheme members pay less than LGPS members.
    And what is the broad argument here? Some private sector employees now have worse pensions, therefore ALL public sector workers must have worse pensions. I thought it was socialists who were supposed to want to drag everyone down to the same level. Council workers pensions haven’t suddenly got super generous – the private sector has got worse. So wouldn’t it be a better use of time to try and figure out ways to rebuild private sector provision, rather than call for the active destruction of good provision where it exists?
    The lack of clarity on what type of scheme you think public sector workers should have just says it all. You don’t know – you just think they should have something worse.
    Finally the inclusion of the discredited Hymans Robertson figure in the appendix of the report really is poor. You even acknowledge that Hymans have retracted it, but include it anyway! Presumably just because it’s a nice big number, even though it’s wrong.
    I expected to find this TPA report challenging, but I was actually surprised by how bad it was. I am open to liberal economic critiques, even though I might not share those views, but this was a very weak piece of work. It just comes across as mindlessly vindictive.

  • http://jonrogers1963.blogspot.com Jon Rogers

    I don’t share your politics (though I too pay my taxes) but I did think you were probably a competent bunch, albeit with an axe to grind.
    I was wrong. This report is of very poor quality and misses more points than it makes.
    To those fellow taxpayers who complain that they feel public sector workers have it relatively easy – why not get yourself organised in a trade union and fight for better conditions?

  • Stevea

    In response to Tom P “get organised into trade unions” Great idea, we could demand bigger and bigger salaries for less hours, better pensions, more generous sick pay, better working conditions, an “internet surfing allowance” (my local Council allows staff up to 40 minutes per day of private internet surfing) and any other public sector benefits we can find. Brilliant, and then we can all watch our jobs going off to India, China or Eastern Europe! Let Town Hall workers have to compete in the real world for their salary and perks and see how long they last!

  • Michael Smith

    Your spreadsheets would have benefited from two more columns; one showing the Council Tax for each authority, and one showing each Council’s employer’s pension contribution to the pension fund as a % of their Council Tax.
    I have done that for the highest Councils in your table, except for Glasgow, and this is the answer I calculated.
    Birmingham 28%
    Kent 15%
    Essex 12%
    Lancashire 16%
    Surrey 12%
    Hampshire 11%
    Rather less than the 21% for all Councils trumpeted by yourselves, except for Birmingham.
    Your analysis fails to mention that where Council Tax finances a lower proportion of a Council’s expenditure, as in Birmingham, the % of employer’s pension contributions in relation to the Council Tax raised is going to be higher.
    In addition, some members of local government pension funds do not have any of their employer contributions funded by Council Tax, such as school admin staff whose pensions are 100% funded by Government grant.
    Without any attempt to allow for factors such as these, your figures – quite frankly – may be worthless.

  • http://labourandcapital.blogspot.com Tom P

    To Stevea
    First, you have directed your comment to the wrong person.
    But secondly, private sector jobs used to have good pensions until a few years ago without jobs going overseas. So your point is flawed in any case in my view.
    What has happened in the private sector, through the closure of good pensions, is a major cut in benefits. If it were expressed in pay terms there would be uproar, but because pensions are a bit more difficult to understand employers have largely got away with it.
    The TPA is inherently misguided in my view because it implies that council pension are somehow uniquely generous. They are not. They are the sort of pensions that were commonplace until a few years ago, and still exist in bits of the private sector.
    Anyone really interested in pensions policy – as opposed to playing politics with pensions – should be thinking about how to rebuild private sector provision, not calling for the destruction of good provision where it remains.

  • david

    Recently retired on a pension provided solely from my own contributions,it is a fact that a final salary pension as provided by Local Government would be many times higher than mine.
    Having spent many years working in both private and public sector companies it is undeniably my experience that there is a much more rigorous culture of accountability within the private sector. This would be across the board, covering such areas as absenteeism,work performance and target achievement.
    Generally in the private sector if you dont shape up you are quickly replaced.
    It is also a fact that final salary schemes are becoming an extinct species in many areas of the private sector. The public sector has the same problems but for a variety of reasons including trade union strength and political expediency it is difficult to change public sector conditions.
    One answer would be to get rid of final salary pension schemes altogether and everyone pay into a private scheme like I and millions of private sector workers have done.
    As well as saving billions of taxpayer’s money in providing public sector pensions it would create a greater sense of personal responsibility in providing for ones own financial future. An ethos that is missing in the public sector.After all the Government has been telling us for some time we need to make greater provision for our old age.Isn’t it a pity they dont practice what they preach.

  • http://labourandcapital.blogspot.com Tom P

    “One answer would be to get rid of final salary pension schemes altogether and everyone pay into a private scheme like I and millions of private sector workers have done.”
    An “answer” in what sense? Final salary schemes are a good thing for those who have access to them. Why is there this desire to kill off good pension provision? It strikes me it is driven far more by an ideological problem with the public secctor than any concern about pension provision.
    As I said previously, the TPA report makes absolutely no attempt to suggest what level of benefits might be appropriate in the public sector (not even a hint about contribution rates or accrual rates). All it says is what public sector workers can’t have. That demonstrates an attitude that is all about attacking a particular part of the workforce and nothing at all about pensions and how they should be funded.
    “As well as saving billions of taxpayer’s money in providing public sector pensions it would create a greater sense of personal responsibility in providing for ones own financial future. ”
    The problem is that if you leave it up to people to sort out their own pension provision a large proportion don’t bother, for various behavoural reasons. The Pensions Commission report has some good stuff on why this is the case.
    “After all the Government has been telling us for some time we need to make greater provision for our old age.Isn’t it a pity they dont practice what they preach.”
    Maybe I am being thick but I don’t understand your point. Surely the Government is practicising what it preaches by providing good pensions for its direct employees?

  • david

    Far be it from me to suggest that Tom P is being thick but the Government is providing good pensions fot itself + public sector workers. It’s just that the funds are being provided by the taxpayer. Let us take the example of one group of workers say the self employed providing services and making a contribution to the economic wealth of the country.They are in fact providing for two pensions their own through contributions into a private fund and public sector workers through their taxes both central income tax and locally through council tax.
    If we take the case of a backbench MP presently on £60,000 p.a. who makes a 9% contribution from his salary,after 26 years he is ‘entitled’ to a pension of £40,000 p.a.Keeping it at current values,he would have contributed £324,000 over the 26 years.
    That amount of money would be lucky to buy him a pension of £16,000 in the private pension market.Who do you think is paying for the shortfall? The self employed taxpayer used in the example of course along with everyone else in the private sector.
    If providing for their own pension is too big a leap for public sector workers why not an average salary pension scheme which would more accurately reflect their contributions over their working life.

  • rita G

    End public sector final salary pensions. Councils no longer ring fence funding for essential services. They are therefore not doing what they were set up to do. I would not miss my council and would gain immeasurably if council and civil service leeches disappeared or at the very least their numbers decreased as well as their perks and pay. There is no transparency and they certainly do not deserve £1 in every £5 f council tax. How do we get rid?

  • enuffisenuff

    If every £1 out of £5 council tax is spent on pensiosn then let us camapign to withold 20% of our council tax until we rae satisfied that councils are not ripping us off. I’ll start now.
    I must say that most public workers I know aseem to be vrey generously paid, take lost of time off sick and get fantastic pensions.
    Time to put a stop to it.