Council pension scheme to reach crisis, warns think tank

A report conducted by think tank Centre for Policy Studies has cautioned that the Local Government Pension Scheme (LGPS) is at risk of reaching a crisis.

The report said ‘excessive pension promises relative to contributions’ have left the scheme in a situation where it is ‘rapidly running out of cash’. The report calls upon the government to introduce a defined contribution (DC) scheme, ‘optionally including a cash balance arrangement (a form of defined benefit, DB) offered for an interim period’.

Michael Johnson, author of the report, said: "Putting the LGPS onto a sustainable footing requires political bravery, but doing nothing in respect of the ongoing DB pension accruals is not an option. Politicians should bear in mind that the inevitable cashflow crisis risks ceding management control to the media."

The proposed scheme would scrap the current LGPS structure and pool the assets of the 89 council pension funds into a number of British Wealth Funds.

A spokesperson for the Local Government Association (LGA) said: “The Local Government Pension Scheme remains cash positive. In 2014/15 some £3.15 billion was added to funds as a result of income once again exceeding expenditure across the scheme.

“Nevertheless, the deficit position is challenging for employers especially given the financial challenges still facing councils. The LGA is working with funds and other stakeholders both directly and via the scheme advisory board on further reforms such as the pooling of assets in order to secure the long-term affordability of the scheme.”