Alert over council pensions as losses hit funds

Some of the taxpayer-funded schemes are failing to hit their own targets while others will struggle to recoup the losses on their investments because of the slow economic recovery and bad stock choices, experts have warned.

Deficits in the Yorkshire local government pension schemes, which are mainly for council workers but also include police authority and court staff, have ballooned over the last decade because of an ageing population and the survival of the final salary scheme, which has been largely scrapped in the private sector.

The plunge in the value of the stock market early last year, before a partial recovery later in 2009, cut the value of many funds' assets. They recouped some of their losses as the FTSE surged but analysts have warned the rise may come to a halt this year. Taxpayers will be left to pick up the bill of any major shortfall.

The head of pensions research at finance experts Hargreaves Lansdown, Tom McPhail, said: "Maybe the return will continue but I think the market has already priced it in a lot.

"If you see the UK market falling back again in 2010 – which I hope does not happen – then council taxpayers can look forward to an uncomfortable rate rise."

Poor returns from the stock market saw nearly a fifth of West Yorkshire Pension Fund's assets wiped out, according to its most recent annual figures. The value of its investments fell by 1.3bn to 5.9bn in the year to March 2009, faring better than the national average but still missing its own target.

The assets of South Yorkshire Pensions Authority, which invested in Iceland after credit ratings agencies had downgraded the nation's banks in autumn 2008, slumped by 631m, a 17 per cent fall, to 3.08bn in the year to March 2009.

The most recently published quarterly report, which covers the period to September, showed a rise to 3.68bn but it still missed its investment target, blaming "asset allocation decisions and poor stock selection".

It also said investors' confidence had increased but added: "There has to be a more than reasonable chance that investors are not out of the woods yet, and this will be translated into (a] further downside in equities." The fund did see a rise again at the end of last year.

The value of the assets in North Yorkshire Pension Fund dwindled by 394m (32 per cent) to 829m in the year to March 2009. By September last year it nearly recovered the loss, meeting its quarterly target but missing its rolling 12 month target.

East Riding Pension Fund took a hit of 398.6m (19.8 per cent) to its assets in the year to March 2009, falling to 1.61bn.

All the funds insist they are in a healthy long-term position and that each valuation was just a snapshot of assets managed over several decades.

The Liberal Democrat work and pensions spokesman, Steve Webb, said the total deficit in the local government pension scheme nationally would soon pass 60bn and blamed Labour for not introducing reforms.

Mr Webb said: "A Government failure to set aside enough money and run the scheme responsibly means millions of people could be faced with cuts to vital services and council tax hikes, hitting pensioners especially hard."

THE FIGURES

n North Yorkshire: Assets fell by 394m (32 per cent) to 829m in the year to March 2009. By September it had nearly recovered the loss, meeting its quarterly target but missing its rolling 12- month target.

n South Yorkshire: Assets fell by 631m (17 per cent) to 3.08bn in the year to March 2009. It has since recouped the loss but missed its July to September investment target.

n East Riding: Assets fell by 398.6m (19.8 per cent) in the year to March 2009, falling to 1.61bn.

n West Yorkshire: Assets fell by 1.3bn to 5.9bn in the year to March 2009.