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Sancho Panza

Why £47Bn Pension Black Hole Threatens To Push Up Council Tax

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Telegraph 17/12/14

'A report published by the Centre for Policy Studies claimed local governments were "running out of cash" to pay pensioners.

More than 1.4 million people receive retirement payments having worked for the local government. But the think tank, which was set up by Margaret Thatcher in 1974, said taxpayers were "exposed" to an expanding £47 billion black hole in the local government pension scheme.

The shortfall means the fund is missing £21 in every £100 it will need to pay pensioners in future, with the situation in danger of "deteriorating".

Michael Johnson, author of the report, said the 89 different funds that are used to pay retired workers were "ponzi schemes in the making".

Three in four were in deficit, he said, as the amount of money paid in by workers each year was failing to cover the costs of payouts to the elderly.

Tthe financial reserves used to cover "cash flow" problems would deplete as pensioners lived longer and cuts to public spending reduced the number of current workers contributing money to the system.

Any shortfalls would be "ultimately underwritten by council tax payers", Mr Johnson warned, calling for urgent reform.

"Decades of ineffective governance have allowed the Local Government Pension Scheme to become a staggeringly inefficient, self-serving empire," he said. "It is a national embarrassment."

Mr Johnson, an academic and former banker, pinpointed management fees as a crucial area in need of reform. Around £1 billion a year was being wasted on unnecessary management fees that were "stealthily and iniquitously eroding" money needed to fund pensions, the report said.

Workers have typically contributed around 20 per cent of their pay towards generous retirement payments worth much more.

The £47 billion funding shortfall, registered in the latest reading in March 2013, was £10 billion higher than had been projected in 2010.

Some funds were in "dangerous" positions. For example, Brent council's pension fund was just 56 per cent "funded", according to Mr Johnson - indicating it was missing £44 for every £100 it expected to pay retired workers.

The figure was only marginally better in Waltham Forest, which was 60 per cent funded, Croydon, 66 per cent, and Worcestershire, 69 per cent.

The report said every three employees in work today were supporting 5.3 retired people, representing an extra 33 per cent burden compared with six years ago.

Mr Johnson recommended nine reforms that could prevent council tax increases. This included merging the 89 funds into one master fund with lower costs and raising contribution rates if finances deteriorated further.

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Michael Johnson, author of the report, said the 89 different funds that are used to pay retired workers were "ponzi schemes in the making".

reduced the number of current workers contributing money to the system.

That's all of the pension system, not just the council pensions and is completely unsustainable.

Then that's nothing we didn't know here.

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Aren't local govt pension schemes currently unreformed, compared to, say, the teachers pension scheme?

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That's all of the pension system, not just the council pensions and is completely unsustainable.

Then that's nothing we didn't know here.

http://www.if.org.uk/archives/2031/ons-reveals-full-uk-pension-liabilities

'On Friday 27 April,2012 the ONS held a seminar at the Royal Statistical Society headquarters in Errol Street, east London, where they officially announced the UK’s full public and private pension liabilities for the first time.

This figure for the total liability includes private sector liabilities, which are less onerous on future generations because they are all funded. Private sector workplace pension schemes have total liabilities of £1.7 trillion, and this total is likely to decrease over time as so many private sector pension schemes have been closed to new entrants and stopped allowing further accrual by existing members. There is an additional £0.4 trillion worth of liabilities for individual private pensions, but these are also fully funded.

More important are the total government liabilities of £5 trillion. These break down as follows:

  • Government employee pensions: £1.2 trillion (unfunded: £0.9 trillion; funded: £0.3 trillion)
  • State pensions: £3.8 trillion (all unfunded)

The liability for state pensions is equal to 263% of Britain’s total GDP, which is actually slightly below the EU-level average of 278%.

Most of the government employee pension liabilities of £1.2 trillion are unfunded, as only £0.3 trillion of them (largely in the Local Government Pension Scheme) are being run on a funded model.'

Edited by Sancho Panza

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Rubbish......

Councils can just build a few more car parks to fund the shortfalls......

I mean that's worked before hasn't it.

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The only sollution is to tax pensions over average wage at 80%..

I actually agree on that.

I'm against punitive taxation on productive work (Anything above 20% for me is theft), but pensions? Definitely.

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Aren't local govt pension schemes currently unreformed, compared to, say, the teachers pension scheme?

No - they have been reformed as well i.e. now career average, contributions up for higher earners (up to 13% of salary) and retirement at state pension age not 65.

Not saying its not generous - but the vast majority of those in the LGPS are lower paid staff like dinner ladies and security people.

And unlike most public sector pension schemes the contributions are actually being paid into a fund and invested. The NHS and civil service schemes are entirely unfunded - with payments just made from general taxation.

Yes - there is a problem - but the biggest one is with central government where the pensions they are committing us to are entirely unfunded. Who is going to fund the costs of those?

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I actually agree on that.

I'm against punitive taxation on productive work (Anything above 20% for me is theft), but pensions? Definitely.

Of course, the spivs in the city have already taken their cut by this time.

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The Centre for Policy Studies can do one as far as I'm concerned. They want my pension, that's just fine that is. They can come and pry it from my cold dead hands. As a minarchist, I believe this pointless and evil think tank needs to be removed, and all funding which they are receiving needs to be stopped with immediate effect.

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Earlier on this year I took the opportunity and transferred all my LGPS/Civil Service pension schemes into my SIPP. The commutation rate wasn't *wholly favourable but a bird in the hand is worth two in the bushes.

* if I die before retirement the cash is worth twice the death benefit including the paltry widows pension element.

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There's no shortfall.

Just pay members of the pension what the fund will support.

You want a DB pension then make sure someone funds its -you, your employee.

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Pensions that constitute unfunded liabilities should be banned - it's basically fraud. These people are criminals just like the guy who sold Tower Bridge.

..exactly ...they live in la la land ...many a banana republic acts like this ...and we have probably arrived.... :rolleyes:

Edited by South Lorne

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The 15/16 local government finance settlement was released last week.interesting point was the referendum was left at 2% council tax like business rates is likely to start rising faster than CPI.

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The only sollution is to tax pensions over average wage at 80%..

Or cap company pensions at something sensible. Which may be nothing.

Then if you want more than that you have to contribute to all of the extra.

Edited by SarahBell

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Look on the bright side, without the well heeled retired teachers and librarians with their Mother of all gold Plated Packages the economy might have fallen apart. Probably adding more spending power to the economy than QE, borrowed money that some one will have to pay back nevertheless.

Keynesians would argue that junior retired firemen getting £100,000 lump sums and £20,000 super annuated income thereafter in their late forties is just the boost the economy needs. Know one such fireman who has just got through his £108,000 lump sum in one year...still doing his duty for the rest of us.

Edited by crashmonitor

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The only sollution is to tax pensions over average wage at 80%..

Pensioners already get generous tax breaks to try to keep them in the country.

Charge the wealthy ones 80% and they'll be off to the south of France before you can say luxury cruise!

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