'Long-term' pensions pain warning

THE "short-term" approach of successive governments has left Britain's public sector pension funds facing long-term pain, a former adviser to Tony Blair has told the Yorkshire Post.

The coalition Government hopes that slashing 500,000 public sector jobs – although this could be limited to 330,000 – will make the work of the state affordable, but Dr Ros Altmann, now director general of Saga, said the scale of pension deficits made the schemes more difficult to reform.

She said: "The ability to cut costs when you have substantial pension commitments is very hard unless you have funded them properly – unless you make workers contribute more you will find it very difficult.

"Pensions have been looked at on a short-term basis but the long-term is important and we are now in the long-term."

Deficits have reached extraordinary levels in this region. North Yorkshire Pension Fund is 602m in the red, at South Yorkshire Pensions Authority the figure is 624m, at East Riding Pension Fund it is 528m and at West Yorkshire Pension Fund it is 730m, according to the most recently published figures in 2007's three-year valuations. The 2010 totals have not yet been issued.

The head of pensions research at Hargreaves Lansdown, Tom McPhail, said cutting the number of workers could worsen the funding position in the short-term, but the schemes would not collapse.

Pension fund managers are always encouraged to protect themselves by keeping money in reserve, but the return on investments has been hit by record low interest rates, stuck at 0.5 per cent for 22 months.

The former Labour Cabinet Minister Lord Hutton has called for the scrapping of final salary pension schemes for public sector workers – which face an estimated 1 trillion black hole – and is due to publish a full report in the spring. However, the regional officer for the Unite union, Tony Randerson, said pensions should not be threatened. He said they were "deferred wages" for workers who had spent their careers on low incomes.

Mr Randerson said: "These massive holes have not come overnight, they have been coming for a hell of a long while. We will fight the good fight to obtain what are the members' rightful monies."

The funds played down played down the prospect of rises in pensions costs. Fund manager John Hattersley at South Yorkshire Pensions Authority said redundancies or allowing workers to take early retirement would create an "immediate strain" on cash flow, but it would not mean a major worsening of liabilities. The organisation could change its investment strategy if appropriate.

John Moore, treasurer of North Yorkshire Pension Fund, said cashflow turning negative was the "nightmare scenario" but it was currently 30m in the black. However he said he was worried about the suggestion that larger funds could be created across regions, cutting running costs but risking the quality of service.

Rodney Barton, director of West Yorkshire Pension Fund, warned that employers, mainly councils, would have to continue tackling the deficits, even if they employed fewer workers who could pay into them, but said the widespread public sector job losses would not hit cashflow while some leavers were not in the pension scheme. Job cuts could mean less money has to be paid out in retirement, he added. Fund chairman Ian Greenwood said there would be an upturn it had invested in gilts when quantitative easing, the Bank of England "money-printing" scheme, concluded.

A spokesman for East Riding of Yorkshire Pension Fund said: "The Government is considering increases to employee contributions. The council is not expecting any significant increase in pension costs."

Private funds feeling squeeze

It is not only the public sector that faces serious concerns over pension provision.

Last week a Yorkshire hot dog firm called in receivers after being plunged into a cash crisis involving its underfunded pension pot. Malton-based food production company Westler Foods said administration was triggered by the company's inability to fund its defined benefit pension scheme, even though it was a profitable business.