Local government pensions are likely to “come under challenge” as finances deteriorate due to austerity and amid the intensifying debate about intergenerational fairness.
This warning has come from a series of speakers at the LGC Investment Seminar in Cheshire who warned the Local Government Pension Scheme needed to demonstrate efficiency or face political challenge.
Former civil service chief Lord Kerslake (Crossbench) said the state would need to ask well-off members of the baby boomer generation to contribute more to their retirement costs.
The chair of London’s Collective Investment Vehicle said this morning: “You can’t ask ‘Generation Rent’ with its student debt to pay the burden for public sector pensions. We shouldn’t let go of the debate about defined benefit pensions but we have to engage in the debate about intergenerational fairness as well.”
In a separate session yesterday, Andrew Burns, president of the Chartered Institute of Public Finance & Accountancy, predicted a debate about the sustainability of local government pensions, which constitute the biggest financial liability of most local authorities when the sector is under financial pressure.
“This places real challenges on the sustainability of the fund,” he said. “The LGPS is a fantastic asset for us to have. We have to work hard to keep it subject to these challenges. It will come under further scrutiny due to austerity.”
Mr Burns said austerity would “reduce the ability of funds to generate contributions, with fewer employees and fewer employers” and said a point could be reached where employers decided they “can’t afford to be part of the scheme”.
He continued: “There’s a perception that our pensions are gold-plated. They aren’t gold plated. That perception is fuelled by the Daily Mail and Daily Express; it’s fuelled by a difference in private sector provision compared to public sector provision.”
With reference to how strong pension provision diminished the need for state social care expenditure, he added: “We need to work very hard to make sure the public understand the benefits of good pension schemes. Ultimately it reduces the costs on the state further down the road.”
Jeff Houston, the Local Government Association’s head of pensions, told the seminar that the realisation following Northamptonshire CC’s financial crisis that councils could “go bust” raised questions for the LGPS.
He said: “At some point local authorities will end up having to choose between two statutory obligations. At that point we are in difficulty. They will have to choose between adult social care and pensions. It’s a delicate balancing act in terms of who pays the bill if there’s an employer who says ‘I don’t want to pay this anymore’.”