- Windfall for local governments
- Use pension surplus wisely
- Urgent funding shortfall
Town halls are urged to use a substantial windfall from pensions to ease the funding crisis faced by local governments.
The Autumn Statement offered no additional funds for councils, resulting in real-term reductions in local services over the next year.
Nottingham recently declared bankruptcy amid projections that around one-fifth of councils may soon become insolvent.
Allowing employers to reduce contributions to the Local Government Pension Scheme, which funds the retirement savings of six million council employees in England and Wales, could offer a temporary solution, according to experts, if the money is spent on services.
The LGPS, with assets worth £364 billion primarily invested in equities, showed a surplus of £22 billion in the previous year’s valuation.
However, a steep increase in interest rates has caused the current value of the scheme’s liabilities (commitment to pay future pensions) to drop, resulting in a much larger surplus.
Steve Simkins of pensions consultants Isio stated, “Local governments and their communities would be profoundly impacted if a portion of this could be made accessible via reduced employer contributions.”
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English councils face a £4 billion funding shortfall in the next two years.
Simkins suggests this could be addressed if corporations reduce their yearly LGPS contributions from £7 billion to £5 billion.
The LGPS stated that the windfall is “actively considered.”
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