Communities secretary Eric Pickles’ claim that local government pensions cost a quarter of all council tax has been challenged by auditors and unions.
Mr Pickles said new data on the Local Government Pension Fund (LGPS) showed “a quarter of everyone’s local tax bill going to local government pension costs, rather than emptying bins, running libraries or cleaning the streets”.
A £5.8bn-a-year cost of employer contributions was the equivalent to £300 for every council-tax paying family in England and Wales, he said, adding: “Hard-pressed taxpayers simply cannot afford to foot an ever-growing bill. This is why action needs to be taken to reduce the massive and unsustainable cost of state sector pensions.”
However, actuary Graeme Muir, head of Barnett Waddingham’s local government team, said the minister’s calculations were incorrect because council tax was only a small part of local government funding, with the majority coming from central government.
“Mr Pickles statement about a quarter of council tax having to meet pension costs is one that has been made before and one that again need correcting”, he said, adding that pensions make up about 5% of a council’s total budget.
A ministerial spokesman said central government grant was taxpayers’ money which could be used to keep council tax down if it weren’t paying for pensions.
The LGPS data showed that 2009-10 expenditure on pension benefits increased by 13% compared to 2008-09 and that the number of former former-employees and pensioners increased while the number of employees paying in contributions was static.
Employee contributions rose by 3% from 2008-09 to 2009-10 while employer contributions increased by 7% in the same period.
GMB national secretary Brian Strutton said funds were on a sound financial footing, with income outstripping expenditure by almost £4bn every year. “With around half the scheme’s income coming from members’ contributions and investment returns, £65 of the average council tax bill goes towards the LGPS and we can be confident of this falling significantly.”
The LGPS figures were released the week after Lord Hutton published his interim report into public sector pensions setting out the case for reform. The former Labour minister said the idea of “gold-plated” public sector pensions were a myth, but said there should be a move away from final-salary pensions in order to make them more sustainable and fairer to the taxpayer.
In a separate announcement, the Treasury said it will restrict pension tax relief on salaries over £50,000.
The future of the benefit for savers was placed in doubt in the summer when the coalition government axed Labour’s plans to drop the cut-off for pensions tax relief from £255,000 to £100,000.
An initial suggestion that the cut-off could be lowered to as far as £30,000 was reconsidered following a consultation.
Treasury minister Mark Hoban said the government was committed to [protecting savers on low and medium incomes and said the policy rethink was made possible by the decision to also reduce the lifetime allowance from £1.8m to £1.5m from April 2012.
The new £50,000 annual allowance, which is to be introduced in April 2011, will effect 100,000 pension savers, but 80% of those will earn more than £100,000, according to the Treasury.