Council pension fund assets fall

Council workers went on strike in 2006 over changes to their pensions

The value of assets held by local authority pension funds in England and Wales fell by £24bn, or 19%, in the 2008-2009 financial year.

The figures have been published by the department for Communities and Local Government (DCLG).

The actuarial firm Watson Wyatt said the drop was roughly equivalent to all the money the councils took in council tax that year.

The drop reflects the effect of plunging share prices at the time.

Watson Wyatt said that when the local authority schemes were formally revalued next year, they were likely to show a bigger deficit than before.

"Private sector employers know only too well that volatility in the pension fund can eat into the revenues generated by their core business and local authorities are learning the same lesson," said John Ball of Watson Wyatt.

However, he said the news was not as bad as it seemed.

"March was the worst time to take a snapshot of pension schemes' assets and strong stock market performance since then means some of the money lost will have been recovered," he added.

The implication for local authorities is that they will have to pay even more into their employees' pension funds to repair an increased deficit, if one is recorded at next year's valuation.

The previous valuation in 2007 revealed a deficit of £27bn which local authorities agreed to pay off over the subsequent 20 years.

A bigger deficit will imply either paying more, which will drain more income from council tax payers, or paying of the deficit over an even longer period of time.

'Myths and preconceptions'

At the annual conference of the National Association of Pension Funds (NAPF), the head of the London Pensions Fund Authority said that the shape of council pension schemes would have to change to make them less generous.

This situation cannot continue and employees must now bear a fairer share of the increasing costs Mike Taylor, London Pensions Fund Authority

Mike Taylor said criticism of so-called "fat cat" pensions for council staff was based on "myths and preconceptions".

But he argued that change was still required to help offset the effect of people living longer.

"Employer or council tax payer contribution rates currently take all of the strain of increasing liabilities in the Local Government Pension Scheme (LGPS)," he said.

"This situation cannot continue and employees must now bear a fairer share of the increasing costs," he added.

Mr Taylor said council staff should work longer and retire later, for instance at the age of 70.

He also said employees should pay more in contributions and that their pensions should in future be calculated on the basis of their career average earnings, rather than their final salaries.

In April 2008, the LGPS for England and Wales, which has more than 1.8 million active members, was changed in an attempt to rein in its growing costs.

A key feature was the abolition of a rule that allowed some staff to retire on full pensions at 60, rather than 65.

The Conservative Party recently pledged to put a £50,000 ceiling on the value of future payouts from pension schemes for government employees, if the Tories are elected at the next general election.