Black hole of £3.8bn in council pension schemes

An analysis of the latest published accounts of councils across the country reveal local government pension schemes faced a combined deficit of more than £50 billion in 2010-11, with several of this region’s authorities among those facing potentially the biggest problems.

Craven District Council in North Yorkshire has the second-largest percentage gap in England, with pensions liabilities now almost double the size of its assets.

Scarborough District Council is also among the 10 worst in the UK in percentage terms, while Leeds City Council has one of the largest gaps of any authority in the country at £650m – although this is proportionate to the large number of workers it employs.

Pension fund managers in Yorkshire say the dire state of the stock market over recent years has combined with people living increasingly longer lives to create the huge gap, but stressed the new figures only offer a “snapshot in time” of the value of the schemes.

But low tax pressure group the Taxpayers’ Alliance, which carried out the new research, said public sector pension schemes must now be reformed to make them more affordable.

Director Matthew Sinclair said: “The deficit in the Local Government Pension Scheme remains a ticking time bomb that’s being left for future generations of taxpayers to deal with.

“With an ageing population and a crisis in the public finances, generous final salary schemes are inflexible and too expensive, and need urgent reform.”

The £54 billion gap revealed today is a marked improvement on the £91 billion reported a year ago – a clear sign of how dependant pension assets are on the performance of stocks and shares.

But Mr Sinclair said the gap remains larger than it was in 2008, and large scale reform is now essential. “Councils should not take false comfort in the improvement in the stock market,” he said. “Their pension liabilities continue to far outweigh their assets and the situation remains worse than two years ago.”

North Yorkshire County Council manages the pension funds of all the district councils within its borders, including both Craven and Scarborough.

Craven’s £46m of liabilities are almost double the £23.7m it holds in assets – the second-worst such ratio in England. John Moore, North Yorkshire’s corporate director of finance, said: “Any deficit is obviously a problem, of course it is, but with pensions we are able to take a very long view.

“A deficit can fluctuate wildly depending on what happens on the financial markets. These asset figures can go up and down from day to day with great volatility – the amount can go up and down as much as three per cent overnight. What this is, is just a snapshot in time.”

Mr Moore rejected the notion of “gold plated pensions” within the public sector, pointing out that most beneficiaries have worked on relatively low pay for their whole lives. “It’s about cleaners; social workers; benefits clerks,” he said. “Final salary schemes are not hugely expensive for these sorts of positions.”

Public sector unions agreed, insisting claims of a pensions black hole are mere “fantasy” and stating it is vital low-pay workers are able to save for retirement with security.

The new study comes as the IMF warned Britain could face an £800 billion pensions shock by 2050 as a result of its ageing population.

Analysis suggests that world economies could be underestimating future longevity growth by up to three years, resulting in a potential retirement cost bombshell that could run into hundreds of billions of pounds for future governments.