More misery in store for tax payers

HOUSEHOLDERS in Ipswich are today facing more years of huge council tax rises after a massive hole appeared in the local authorities' pension fund.A deficit of more than £235 million has opened in Suffolk county council's pension balance sheet - it has increased by almost £100 million over the last two years.

HOUSEHOLDERS in Ipswich are today facing more years of huge council tax rises after a massive hole appeared in the local authorities' pension fund.

A deficit of more than £235 million has opened in Suffolk county council's pension balance sheet - it has increased by almost £100 million over the last two years.

And Ipswich council – which is a member of the same pension scheme – has seen its deficit increase to £21 million.

The gap is being plugged by the councils using taxpayers' money to boost their employees' funds. Council employees are not seeing their contributions to the fund increasing.

Suffolk has increased the share of pension contributions it is paying directly from 18 per cent of salaries two years ago to 19.5 per cent of salaries last year and 21 per cent this year.

Although the employees do not actually see the money, the effect on the balance sheet is like giving 17,000 council workers an extra 1.5 per cent pay rise every year.

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Meanwhile Ipswich council is paying 27 per cent of salary towards the fund for everyone employed at Civic Centre.

That means a council officer earning £20,000 a year actually costs the borough £25,400 a year once pension contributions are taken into account. The employee would pay £1,200 a year into the fund from their salary.

Employees at all councils have seen their contributions to the scheme remain constant at six per cent. This figure is set by the government and cannot be increased without a change in legislation.

Teachers' pensions are not directly affected because they come from a fund administered by the Department of Education and Skills - but the county council contributes to this scheme.

Other local authorities around Suffolk also "buy in" to the county's pension scheme.

Its total assets amount to £605 million but the county council's share is only £276 million.

Pension funds across the country have been badly hit by the fall in share prices over the last few years which has left many with substantial deficits.

Earlier this year there was concern when it was revealed that BT's Pension fund had a deficit of £2.5 billion - however that is a small proportion of the total value of the fund which stood at almost £23 billion last year.

Other companies whose pension fund holes have caused concern include pharmaceutical giant Glaxo SmithKline, Rolls Royce, and British Airways.

The size of Suffolk's pension hole came as a shock to county council opposition leader Jeremy Pembroke, who is a member of the investment committee.

"I haven't been sent these figures, but they sound horrendous," he said.

"When the last actuarial valuation was completed in 2001, the deficit was about £140 million. Now you are telling me it has gone up to £235 million.

"This will have to come out of council tax payers. We have been saying that the hole should be plugged by selling some of the council's assets.

"The administration has not gone down that road - and neither has it considered asking employees to increase their contributions because of fears that would just lead to increased wage demands," Mr Pembroke said.

"As it is, it looks as if these 1.5 per cent increases will have to continue year on year until the stock market improves," he added.

Babergh Council's pension hole is now £12.5 million and is being met by increasing its contributions and using money raised by the sale of assets.

This year's rises of 18 per cent provoked major anger in the county – and further rises to plug the pension hole would be equally unpopular.

However Jane Hore, Chair of the Investment Panel for the Suffolk Pension Fund, said pensions were only a small element in the rise:

"Our actuaries are actively monitoring the situation with regard to the pension fund.

"When the fund was last formally assessed in 2001 it was 84 per cent funded. The impact on council tax this year was minimal, with approximately one per cent of an annual household bill going towards the pension fund.

"It is impossible to predict with any certainty what the impact on next year's council tax will be."

Vicky Bolton from the National Association of Pension Funds said the deficits had opened for three reasons:

Share prices have fallen for the last three years.

People are living longer so claim more in pensions.

A change in accounting legislation means companies now have to assume that pension funds could be drawn immediately when they will not be.

"There are problems facing pension funds, but generally speaking things are not as bad as they seem," she said.

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