Tax Payers’ Alliance Local Government Pension Deficit Calculations are Flawed
13 April 2012 (PLANSPONSOREurope.com) – The Tax Payers’ Alliance (TPA) methods of working out local government pension deficits are flawed, according to Graeme Muir, partner at Barnett Waddingham.
Figures from the TPA reveal that councils across the UK had a combined pension deficit of £54 billion in 2010-11.
But Muir disputes the figures: “Firstly, the (accounting) basis of measurement of deficits quoted by the TPA is flawed in that these deficits would only be meaningful if all Local Government Pension Scheme (LGPS) Funds invested all their assets in bonds. However, funds are long term investors and can afford to take a longer term view and invest in assets that are expected to produce higher returns in the long term.
“Thus funding deficits, which do reflect actual investment strategies, will be lower (maybe by between a third and a half lower) and the deficits that actually matter are being funded via current levels of contributions.
“Funds are a bit behind schedule in terms of their funding journey for many different and historical reasons but have been, and continue to make up time by going a little bit faster to catch up. We don’t need, nor is it usually possible, to catch up immediately as there is still a long journey ahead.
“Secondly, the LGPS is currently being reformed – essentially trading in the previous model which has turned out to be more expensive to run than originally thought, to a more affordable model to ensure we still reach our destination of some reasonable and predictable level of retirement income. It might just a little longer to get there.”