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‘Council tax bills to rise’ because of £1.6bn public service pensions blunder

Council Tax Bill
Council Tax Bill

Council tax bills will “inevitably” rise to cover the cost of a £1.6 billion public service pensions blunder which has forced local authorities to set aside millions of pounds in redress.

The payments relate to the “McCloud judgment” – a landmark legal case involving fire service and judges’ pensions.

Workers claimed their pensions were not protected in the same way as those of older employees, following a change in 2014 which switched public sector pensions from final salary schemes which guarantee retirement incomes for life to self-managed pension pot arrangements common in the private sector.

The change was borne out of a 2010 commission into the affordability of public sector pensions.

Councils have had to set aside millions of pounds for payouts following the ruling. In October, new legislation came into force stipulating how town halls and other public sector employers will need to compensate affected workers.

Payouts will have to continue for several decades to come, until everyone who worked from April 2014 to March 2022 retires – the period over which the ruling required pension benefits to be corrected.

The cost to local councils in England and Wales has been estimated to be £1.6bn, according to the Local Government Pension Scheme (LGPS) Advisory Board.

The LGPS has 6.4 million members and 15,000 employers which contribute to it. Per year, the corrections are costing councils £100m collectively, according to consultancy Aon.

Nottingham City Council, which effectively went bankrupt last month, had to set aside £4.8m in its most recent published accounts for 2020-21. Birmingham City Council, which went bankrupt earlier this year, had to set aside £5.6m in its 2021-22 accounts.

One in six council bosses expect their authorities to declare themselves effectively bankrupt next year, according to a Local Government Association survey published this week.

Steve Webb, former pensions minister and partner at consultancy LCP, said many local authorities were already under extreme financial pressure and that the costs of fixing problems with public service pensions “will be a substantial additional burden”.

He added: “Whilst it is only right that the Government accepts the court’s judgment and undoes the illegal age discrimination from when public service pensions were reformed in 2015, it will be local council tax payers who face the consequences.

“This will inevitably lead either to higher council tax bills, cuts in public services or a combination of the two.”

At retirement, workers affected will have a choice as to whether they want to have built up pension rights under the old or new scheme from 2015 to 2022 – letting them choose the best option.

Virginia Burke, senior consultant with Aon and a McCloud specialist, said while the correction payments did place a financial burden on councils – she said it was eased by the fact the cost is spread across decades.

She added: “It’s a bureaucratic nightmare for councils. They’re having to employ extra people to do the work. It’s a resourcing issue above all else.

“They’re having to go back and ask for people’s working hours all the way back from 2014 and then go back to the payroll providers. They are also having to change the systems they use in order to actually pay the benefits.

“People in these schemes will see very minimal changes, and some no changes at all. It’s a huge amount of work and resources for very little change.”

Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, said it was “an additional, unwelcome cost” but that the LGPS as a whole is currently well funded with more assets than liabilities.

A spokesman for the LGA said the remedy was “a significant project” and that it is continuing to work with authorities and funds to ensure they have the right information and tools to implement it correctly.

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