UK - Citizens face significant council tax hikes to fill a £28bn pensions deficit unless local government funding is increased, Lane Clark & Peackock (LCP) has warned.
According to research by LCP, council tax and business rates would have to rise by an average of 5% above inflation over the next few years to cover a £28bn pension shortfall in Local Government Pension Schemes (LGPS), unless central government increased local government funding.
Recommended funding payments would already add £1.2bn a year to local government costs, but this would rise by a further £500m yearly if government’s plan to increase the retirement age for local government workers to 65 by 2013 was not implemented.
Tim Sharples, a partner at Lane Clark & Peacock, said: “While companies in the private sector have been cutting back on their pension provision, particularly for new employees, public sector schemes have been largely unaffected.”
But given the funding that was required to make up the shortfall in LGPS funds, it was expected these schemes would come under closer scrutiny in the same way as the private sector, he said.
“With forecasts suggesting that council taxes would have to rise next year by about 10 per cent to cover existing services, this situation will become a political hot potato.”
The research by LCP showed the average funding position had fallen by 15% since the last actuarial valuation in April 2001. The average funding ratio now stood at 75% compared to 90% previously.
Many LGPS employers had not significantly increased their pension contributions since 2001 despite the majority of funds having deficits at the time, the research showed.
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