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Is your council tax set to soar?
Image © Steffan Rousseau – PA Wire
Burgeoning pension fund deficits could trigger a sharp hike in council tax bills, a tax organisation has warned.
Councils across the UK have a combined pension deficit of more than £54 billion in 2010/11, according to new research from The TaxPayers' Alliance (TPA).
Put another way, the UK's 101 local authority pension funds have total liabilities calculated at £186.6 billion and total assets worth £132.4 billion.
This difference represents a huge 'black hole' at the heart of the Local Government Pension Scheme (LGPS).
Your share could be £1,125
To put this £54 billion shortfall into context, it averages out at £1,125 for each of the UK's 48 million adults. Ultimately, taxpayers will be held liable for this deficit, so we could be facing some steep increases in our council tax bills, plus other local taxes such as parking charges and fines.
In previous research, TPA estimated that a fifth (20%) of all council tax is spent on funding employer contributions to the LGPS. In other words, if your council tax bill this year is £1,500, then around £300 of this goes towards topping up your local council's sickly pension scheme.
As a result, TPA argues that the LGPS is "much more generous than most private-sector pensions and is in urgent need of reform."
The only good news is that this huge deficit fell from £91 billion in 2009/10 to £54 billion in 2010/11, largely thanks to a sharp recovery in share prices. Then again, this is still £3 billion more than the £51 billion shortfall recorded in 2008/09, so things have got worse instead of better since the recession.
10 councils with big 'black holes'
According to TPA figures, these 10 councils had the largest pension deficits in 2010/11.
|Council||Deficit (£m)||Funding level||Deficit per person|
As you can see, Birmingham has the biggest pension shortfall, weighing in at a hefty £1.34 billion, or £1,292 for each of its 1,037,000 citizens. Durham has the second-highest black hole, at £728 million (£1,424 per head). In third place is Hampshire, with a deficit of £718 million, which comes to £554 per head.
Another problem is that some pension funds are much better funded than others. The average funding level for all LGPS plans is 70% of their liabilities.
However, of the top 20 councils, three have assets worth less than three-fifths (60%) of their liabilities. These are Brent (London), with a funding level of 42%, Rhondda Cynon Taff in Wales at 53% and Welsh capital Cardiff, with a 58% funding level.
In total, TPA identified 26 councils with funding levels below this critical 60% level. Brent was the worst by far, but other councils with pension-funding problems include Merthyr Tydfil, South Wales (50%), Craven, North Yorkshire (52%), Worthing, West Sussex (52%) and Havering, London (55%).
The biggest bills per head
TPA also identified those councils with the highest pension shortfalls per head of population. These are the 'top 10' in this category.
|Council||Deficit (£m)||Funding level||Deficit per person|
|Rhondda Cynon Taff||£483||53%||£2,063|
|Neath, Port Talbot||£275||59%||£2,001|
|Hammersmith and Fulham||£322||59%||£1,899|
Merthyr Tydfil has a shocking pension problem, with a deficit amounting to £2,268 per head, which is more than double the £1,125 average I calculated above. Brent is just behind on £2,267 per head and Rhondda, Cynon, Taff takes third place with a deficit per person of £2,063.
While London and Wales dominate the list above, the situation looks bleak across the country.
This is a problem for every household paying council tax throughout the UK. Indeed, every one of the 434 councils in this survey - from Aberdeen City to York - has a pension deficit, although it's a tiny £3 per head at the Greater London Authority and in Chichester, West Sussex.
Pension promises we can't keep?
Frankly, I find this survey to be deeply disturbing. Clearly, councils with huge pension black holes will have to fill them somehow - and this burden will fall on ordinary taxpayers. However, with Brits struggling to pay their own household bills and pension contributions, it's a bit much to ask them to fork out an average £1,225 extra per person towards sorting out council pensions, too.
Hence, Matthew Sinclair, director of the TaxPayers' Alliance, is calling on the government to reform pensions urgently.
"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," said Sinclair. "With an ageing population and a crisis in the public finances, generous final-salary schemes like the LGPS are inflexible and too expensive, and need urgent reform.
"Councils should not take false comfort in the improvement in the stock market. Their pension liabilities continue to far outweigh their assets and the situation remains worse than two years ago."
In summary, unless councils take action to increase employee pension contributions, freeze current entitlements, reduce future payouts and increase their retirement age to 65, then taxpayers could be clobbered with yet more rounds of steep rises in council tax.
This will not be a welcome move, especially as many councils have already ignored the call by Secretary of State for Communities and Local Government, Eric Pickles, to freeze council tax in 2012/13.
Want to know how big your share of this problem is? Then find your local council in the full report from The TaxPayers' Alliance.
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I am not sure why Dunoon is blaming the Tories as this problem has built up over the last 10 years or more mostly under under a Labour government.
The problem remains however and needs to be addressed, we can no longer afford final salary pensions, and all workers in both the public and private sector have to accept that they will have to pay more for longer and receive less (this includes teachers )
The taxpayers of this country can not be expected to bail out poorly run (predominantly Labour councils ) forever
So let's get this right. I've paid into my own private pension ever since I started earning, which is 36 years. Every penny of that is to ensure I get a decent pension to live off when I retire.
Now you're telling me that I have to endure ANOTHER rip-off just to ensure somebody ELSE gets a decent pension????
FFS, never mind Guy Fawkes. Give me some fertilizer.........
Whilst I agree with the Taxpayers Alliance highlighting the deficit issue,I cannot agree with the remedy that they propose.
ALL pensions,public or private,nust be funded by the employer\employee 100%, NOT the taxpayer,I think that any reasonable person can agree with that.
What they are proposing though,is to 'freeze' existing pension payments at current levels,in other words,let the real value of existing pensioners pensions,be devalued.
That is criminal dishonesty,it is a parallel situation to other state benefits,whereby they are upgraded by the CPI,rather than RPI,but this is much worse,it is a standstill proposal & is criminally dishonest.
The issue has to be looked at from the perspective of New Labour's period in office,back in 1997,they rewarded their election victory over the Tories,by awarding huge UNPAID FOR salary increases to the union dominated public sector,that is to say, THE PAYMASTERS OF NEW LABOUR.
Those increases have never been paid for,unsurprisingly perhaps, the adjustments necessary from those increases,have never been made in any of Gordon BROWN's budgets.
THAT IS WHERE THE ROOT OF THE PROBLEM LIES,MAKE THE PUBLIC SECTOR PAY FOR THOSE INCREASES-NOT THE TAXPAYERS,NOR THE EXISTING PENSIONERS.
When, on average, 20% of all council tax collected goes on public sector pensions, then surely it is time to do something about the situation.
I could understand the public sector being paid a decent pension years ago, when as a reward for job security & a pension at the end, they had a working life with substantially less pay than people in the private sector. But wage rises over recent years have put public sector workers on at least the same wage as their private sector counterparts, & in some cases even higher.
It's time that many of theses public employees were made to realise what life is like in the real world, & if they have a problem with that, i'm sure there are many people who would be happy to step into their jobs.
According to the report, they only measured assets versus liabilities. Meaning, if those that we borrowed money from came knocking and asked for every single penny back now we wouldn't be able to pay it. They call this an Acid Test Ratio.
However, what they conveniently leave out is how much revenue is actually being taken in by councils. If you want to measure deficit accurately then you need to use this. The notion that a creditor would turn up and ask for all their money back at that one point is unheard of in the real world.
you english voted for this government ,how dense are you
WHY OH WHY DO PEOPLE KEEP SAYING THIS TRIPE?????
NO-ONE VOTED THIS GOVERNMENT IN - THE TORIES & LIBS HAD TO COBBLE THEIR PALTRY VOTES TOGETHER TO GET INTO POWER!!
I wonder if DUNOON is one of those who pray for independence for the Scots?
If so,they can happily take their pension liabilities with them.
While we are at it,HS2 the high speed rail link,could also be classed as an exit route for all the immigrants residing in Scotland,to escape to England,once the Scottish money runs out, in double quick time.
Maybe Westminster ought to 'Scotch' that one,by disallowing any resettlement to England,BEFORE IT ACTUALLY HAPPENS-AS IT WILL.
why do peaple continue to blame the political parties for this mess
Because the government allow the companies you mention to RIP EVERYONE OFF!!! THEY ARE ALL IN IT TOGETHER - DONT YOU GET THAT????????????
Burgeoning pension fund deficits could trigger a sharp hike in council tax bills
Thats their stinking lying excuse and they are sticking to it!!!!!!!!!!!!!!!
REVOLUTION IS THE ONLY SOLUTION
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