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Public-sector pensions could be unaffordable in the future

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Public-sector pensions are under threat of extinction without reform, according to the London Pensions Fund Authority (LPFA).

Speaking at the National Association of Pensions Funds Annual Conference in Manchester, Mike Taylor, chief executive of the LPFA, said: "It is a myth that public-sector pensions are gold-plated and outdated. They are not unaffordable, but the issue of longevity means they could be unaffordable in the future."

Taylor attacked what he called the "myth that public-sector staff could enjoy gold-plated pensions, while private-sector staff would be forced to retire into poverty".  And added: "It is time we had a more robust debate on public-sector pensions, grounded in fact."

According to Taylor, the average scheme member in a local government pension will receive an average of £4,000 per year in income and councils are paying more in education than staff pensions. He added that income into most local government schemes can be almost double the outcome.

"No one thinks saving for retirement is a bad thing," he said. "Workplace pensions are a good thing but as people live longer in retirement it becomes harder to balance."

Taylor's announcement came on Friday as research from the Department of Communities and Local Government found the value of assets in local government pension funds in England and Wales fell by £24 billion (19%) over the past year. This is roughly equivalent to all of the money local authorities collected in council tax that year. 

John Ball, head of defined benefit pensions at Watson Wyatt, said: "There is a big hole in local government pension funds that will have to be filled sooner or later. The Government is worried that even a 20-year payback period could require council tax rises that the electorate will not stomach. It has therefore suggested kicking the problem into the long grass by letting councils target a funding level below 100%.

 

"Since the pensions to be paid out would be the same, this just means asking future generations to pick up the tab. It's a different story in the private sector, where the Pensions Regulator has told employers that massaging down funding targets to mask the impact of market movements on funding levels is completely unacceptable."