Pensions black hole 'shrinking'

THE deficit on Suffolk County Council's pensions fund has shrunk by £120m in the past six months - but still faces a massive shortfall of £155m.As householders brace themselves for another above-inflation increase in council tax which will contribute to paying for the deficit, the council's employees are unable to follow the lead of the private sector and pay increase contributions to plug the yawning gap.

By Danielle Nuttall

THE deficit on Suffolk County Council's pensions fund has shrunk by £120m in the past six months - but still faces a massive shortfall of £155m.

As householders brace themselves for another above-inflation increase in council tax which will contribute to paying for the deficit, the council's employees are unable to follow the lead of the private sector and pay increase contributions to plug the yawning gap.

Council employees pay 6% of their salaries into their pension scheme. But while businesses have asked their employees to pay extra to counter the decline in funds because of falling prices on the stock market, it would take a national agreement approved by the Government to increase the contributions of local authority staff,


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When the formal valuation of the pension fund's assets was carried out into in March 2001, the deficit was £133million. This had soared to £275m because of declining share prices, but a rally in the stock market this year has cut the figure back to £155m.

There are four main reasons for the deficit, the first of which dates back to the start of the 1990s when the Government allowed local authorities a two-year pension holiday.

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The life expectancy of pensioners has increased which means the pension fund is paying pensions for longer is also a factor, as well as Government changes in the treatment of pension funds in the 1997 budget.

It is also due to the recent prolonged period of falling stock markets.

However, the impact on the public is small, with just a fraction of 1% out of the 18.5% increase in council tax in 2003/04 caused as a result of the extra finance needed for the pension fund deficit.

This means that about £6 out of the increase in a Band D Council Tax property in 2003/04 was needed in order to meet the increased payments into the pension fund this year.

Bill Banks, the county council's assistant director of finance, said: "It has a very small effect, less than 1%, on the council taxpayer but the indication is in future we will take action that avoids the council taxpayer having to pay to bring back the deficit fund.

"We are not dealing with people who are earning huge salaries over their working life.

"We know that the current deficit is reducing as we speak and in fact it is a good news story.

"The resulting fact is the impact on the council tax payer is minimal already and will reduce altogether in the future."

Jane Hore, the council's portfolio holder for economic and social regeneration, said: "In the 1980s, pension funds were swimming with money.

"The stock market investment returns were so high the Government allowed employees to take holidays where they didn't contribute. Now there's increased life expectancy and medical enhancements meaning pensions are being paid longer.

"We are bound by Government legislation and it has to be employer's contribution that increases. It's decided by central Government. The shortfall has to come from the employer's side. We can't change the rules locally in Suffolk."

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