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The value of the Local Government Pension Scheme fell by £2bn in 2007/08, but the global banking crisis could drag fund values down further next year. Gloomy news regarding the health of the LGPS was published by the CLG on 10 November. It shows that the total value of the scheme, which covers retirement pots for 1.6m town hall staff, fell by more than £2bn to £120bn between April 2007 and 2008. But that figure does not cover declining share values since this summer's global banking crisis. Record retirement levels across some LGPS funds, particularly in Scotland, are putting further strain on the generous, final salary-linked scheme, which is regarded as a major town hall recruitment tool. Whitehall officials recently amended the LGPS to make it more affordable for councils – by requiring higher employee contributions and ditching the ‘85-year rule' allowing staff to retire early – but these changes are taking time to feed through to the value of the scheme. Councils match their pension liabilities with assets over decades, so a single year fall in market value does not represent a crisis. In the short term, however, fund managers are battling to shore up schemes. In Scotland, COSLA and the Scottish Government have agreed a £40m bail-out to secure police and fire authority pensions amid record numbers of retirements. COSLA said the move was necessary to prevent rises in council tax to cover pension costs. A source at the CLG's pensions team said: ‘A £2bn decline represents just 2% of the value of the LGPS, so there is no sense of panic. ‘Funds are always exposed to risk when markets become volatile, but councils can cover any year-on-year declines with long-term investment. The basic structure of the fund remains sound.' The CLG's figures also expose the higher costs paid by London boroughs to pension fund managers. Inner London boroughs, which generally have small LGPS funds per member, spent £136 on fund management last year. This compared with just £56 spent by metropolitan authorities per member, which often have larger funds, and £78 across shire councils.

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FINANCE

Pension fund falls £2bn and could drop further

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