Use pension riches to plug funding gaps

Town halls are being urged to use a huge pensions windfall to ease the crisis in local authority funding.

There was no extra cash for councils in the Autumn Statement, leaving them facing real term cuts in local services over the next year.

Nottingham recently became the latest local authority to declare itself bankrupt amid forecasts that nearly a fifth of councils could soon run out of money.

But experts say allowing employers to cut their payments into the Local Government Pension Scheme – responsible for the nest eggs of six million council workers in England and Wales – could provide a short-term solution if they spend the cash on services instead.

The LGPS has £364 billion in assets and invests mostly in shares. In a valuation last year it registered a £22 billion surplus.

The sharp rise in interest rates since means the current value of its liabilities – the promise to pay future pensions – has nosedived, so the scheme has a much bigger surplus.

‘Making some of this available through reduced employer contributions will make an enormous difference to local authorities and their communities,’ said Steve Simkins of pensions consultants Isio.

English councils face a £4 billion funding gap in the next two years. 

Simkins said this could be plugged if firms reduce the annual amount they pay into the LGPS from £7 billion to £5 billion. 

The LGPS said it is ‘actively considering’ the windfall.