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The cost of staff pensions at town halls has soared by 20% over the past three years. Figures published by Communities and Local Government on 6 November show that annual expenditure on the Local Government Pension Scheme (LGPS) has increased from £5.1bn in 2004/05 to £6.2bn in 2007/08. The rise reflects increases in the general cost of employers' pension provision, as well as a spike in the number of local government workers retiring. Lump sums paid to staff on retirement have doubled from £500m to £1bn over the period. Although officials anticipated rising costs, this coincides with a fall in LGPS fund values, due to lower stock market returns – placing town hall coffers under greater strain than anticipated. CLG figures also show an increase in the revenues going into LGPS funds through both employees' and employers' contributions, as officials tackle rising liabilities by increasing payments into individual schemes. Total income has increased from £8.3bn in 2004/05 to £10.6bn this year. However, much of this excess, when compared with expenditure, has been used to tackle historical under-funding across pension schemes. This occurred following the former Conservative government's decision to relax rules requiring pension schemes to match their liabilities with assets. Ministers now want councils to match assets and liabilities – and changes to the structure of the LGPS, introduced in 2005, should also reduce the long-term costs to councils. A spokesman for the Local Government Association said: ‘The increase in pension expenditure is not unexpected but does highlight the rising cost of retirement provision. Changes to the structure of the LGPS should soon feed through to schemes and should ease the pressure.'

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FINANCE

Local government pension costs soar

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