Nearly a quarter of all council tax raised is being used to fund staff pensions, new figures suggest.
A data analysis across more than 250 councils has found that almost £7 billion was funnelled into the Local Government Pension Scheme (LGPS) last year, just short of £1 in every £4 raised in council tax.
The figures, published by The Times, have been described as “extremely difficult to justify”.
The analysis includes £141.7 million paid into pension pots by Birmingham City council, which effectively declared bankruptcy last year.
The Times based its analysis on Freedom of Information requests sent to more than 300 councils across Britain, of which 254 responded.
Those authorities reportedly paid £5 billion into their staff pensions last year, equivalent to an average 23.5 per cent of their council tax proceeds. For some councils, the proportion was more than half.
From these figures, The Times extrapolated that the total sum paid into pensions across all councils was more than £6.7 billion.
Council workers are automatically enrolled into the LGPS, one of the most valuable pensions in the country.
It is a defined benefit pension scheme, which guarantees an inflation-linked income for life in retirement.
This type of pension is so expensive to maintain that employers have phased them out of the private sector.
Today, most private sector workers save into “defined contribution” pension schemes, which invest their savings in stocks and bonds.
Unlike defined benefit schemes, it is individual employees’ responsibility to turn their savings into an income in retirement.
Tom McPhail, a pensions expert at financial adviser Lang Cat, told The Times that the “generous pensions” offered by councils could no longer be justified to taxpayers.
“In the context of today’s economy and the decline of private sector pensions, it is extremely difficult to justify the continued generosity of the local authority scheme,” he said.
“If you rewind 30 years, it would have been relatively unexceptional and similar to what was being offered by FTSE 100 companies.
“The difference is private sector employers became at first unwilling and then unable to meet the cost of such generous pensions.
“Yet the public sector and in this case, the local authority scheme, has just sailed blithely on regardless, relying on the captive funding of local authority taxpayers to subsidise their pensions.”
He called for the scheme to be reformed, saying: “We can no longer justify to our citizens, to our ratepayers, to our council-tax payers, draining them of this money to support these pension schemes. The moral case for it is very straightforward.”
‘Retention difficulties’
A spokesman for the Local Government Association, which represents councils, said: “Local government workers provide hundreds of essential services every day. However, more than nine in ten councils are experiencing staff recruitment and retention difficulties.
“The pension scheme can help encourage people to develop a career in local government. With pay often lower in local government than comparable private sector roles, the scheme can mitigate that while helping public sector workers avoid needing welfare benefits in retirement.”
