£4bn black hole leaves "gaping pensions deficit" By ANDREW WHITAKER Published on Friday 13 April 2012 00:25 THE pensions of more than 230,000 council workers in Scotland could be at risk after a black hole of more than £4 billion was uncovered in a report published today. The study, from Taxpayer Scotland, highlighted fears the country's 32 local authorities do not have enough funds to pay their employees" pensions. The paper argued councils" investment funds were not raising nearly enough to cover the cost of pensions, leaving a "gaping pensions deficit" of £4.16bn. View the full pension deficits in 2012 for the UK (PDF) View the full pension deficits in 2012 for Scotland (PDF) Scotland's councils have pension assets of more than £18bn but total liabilities of up to £22.5bn, the figures showed. The report claimed the pension assets held by each local authority were "dwarfed by the size of their liabilities," for which it said taxpayers were "ultimately liable." It raises questions over whether some local authorities will be able to afford to pay out pensions to employees, who have contributed to a scheme throughout their working lives, when they retire. Glasgow had Scotland's highest pension deficit at £625 million - £1,054 per head of the city's population. It was also the seventh highest deficit in the UK, with Birmingham having the biggest black hole at more than £1.3bn. However, the report said Dundee City Council had the highest deficit per head of population in Scotland, at £1,565. The report said the shortfall for Edinburgh council stood at £335m, which its finance chiefs acknowledged. Fife Council had a pension deficit of £382m, while South Lanarkshire had a figure of £236m and Aberdeen £228m. However, Taxpayer Scotland's claims were criticised by the Convention of Scottish Local Authorities (Cosla), which said the report was "sensationalist." A Cosla spokeswoman said: "These figures would only ever be true if every person in every scheme retired on the same date and wanted to draw down their pension." The report by Taxpayer Scotland - part of campaign group the Taxpayers" Alliance - was based on an investigation of how the UK's local councils have invested the pensions funds of their workforces. The group claimed the global economic downturn had reduced the returns on pension funds that had been invested, leading to a shortfall in covering the cost of pensions for the continual retirement of council employees. It said the Local Government Pension Scheme was "much more generous" than most private sector provision, and placed a "heavy burden" on taxpayers. The report said: "With an ageing population and a crisis in the public finances, generous final salary schemes are inflexible and too expensive." Scotland's council workforce is not affected by the Westminster government's plans to reform public sector pension schemes. Under these proposals, the likes of tax office workers, JobCentre Plus employees and court staff could see their pension contributions doubled to meet future costs. Last night, a Scottish Government spokesman said: "We are committed to public sector pensions which are affordable, sustainable and fair. We are taking forward long-term reform but our efforts are made more difficult as the UK government has changed its plans with greater impact on Scotland. We are committed to reform in partnership with key stakeholders, including trade unions and employer organisations such as Cosla who, on behalf of local government, are responsible for local authority pension schemes, and will consider the options available to us in the light of available evidence. Scottish Tory MSP Murdo Fraser, convener of Holyrood's economy committee, said: "These shocking statistics show the extent of the black hole that exists in publicly funded pensions schemes across local government. The only sources for funding these deficits would be through increased taxes or more payments from the workers themselves. Taxpayers who have seen their own pensions suffer will not take kindly to any suggestion that they should dig deeper into their pockets. Eben Wilson, director of Taxpayer Scotland, called on councils to set out how they would deal with the deficit, after its figures showed local authorities only had enough pension assets to cover the cost of 82 per cent of pensions for their workforces. He said: "Local councils need to tell taxpayers how they intend to deal with these deficits. They cannot hide their head in the sand and hope that low growth and low interest rates go away to allow their assets to recover. We believe they need to come forward with long-term arrangements which allow a return to fully funded schemes. That involves higher employee contributions and curtailed employer contributions. Taxpayers cannot afford the future liabilities that these council schemes are showing. Private-sector pensions are nowhere near as generous in their provision because there is no taxpayer available to bail them out. What taxpayers need to know is that tomorrow's pensioners will not be retiring on the backs of hard-working families who still have to make their own pension provision in addition to paying of these liabilities. That would not be fair. SNP MSP John Wilson, deputy convener of Holyrood's economy committee, said: "I find it difficult to believe that the combined deficit for the pensions schemes of local authorities is anywhere near the figure of £4.16bn that's cited. If this is the case, then serious questions must be raised about the management of the scheme and how pension fund managers have invested the pensions of local government employees. I would expect local authorities to ensure the proper management of the scheme and to make the workforce and the unions fully aware of any changes. A spokesman for Glasgow City Council said: "By its own admission, the Taxpayers" Alliance represents only a tiny fraction of the population. These comments display a bewildering lack of understanding of how pension schemes work - and advocate a massive hit on the lowest-paid workers to subsidise the very highest earners. This is further evidence, if any were needed, that the Taxpayers" Alliance knows the price of everything and the value of nothing." Phil Wheeler, Edinburgh council's finance convener, said: "The council is aware of the deficit, which is considered as part of the tri-annual valuation of the pension fund. The valuation sets employer contribution rates in order to address the deficit over the longer term.