VentnorBlog contacted the Isle of Wight Council last week to try and ascertain what sort of health the council’s pension fund was in.
We’ve heard back from them today that what they call “a notional deficit” stands at around £153 million. In non-financial English – to meet the obligation of their pension scheme (pay out everyone’s pension), the council’s pension pot is £153 million short.
This isn’t a problem unique to the Island, with 83 of the 87 other councils around the UK finding that their pensions are also in deficit.
How has this come about?
Dave Burbage, IW Council Strategic Director of Resources, gave VB a statement saying, “This notional deficit exists because the scheme has increased liabilities (because pensioners are living longer in retirement) coupled with a reduction in asset value because of market conditions.”
The last section translated – their investments, as has been the case with many other individuals and organisations, haven’t made the money that they’d hoped.
Going in to further detail, Dave Burbage said, “The deficit is a notional one, based on a range of assumptions, made by our actuaries (VB: definition “a business professional who deals with the financial impact of risk and uncertainty”), that continually change. One also has to bear in mind that the Local Government Pension Scheme (LGPS) is a ‘defined benefit’ scheme (VB: definition fixed monthly pensions payments are made, based on salary, years of employment, etc), and as such the benefits it pays are determined by statute. The Council has little discretion over them, if any.”
Where will the money come from?
“It is hoped that as the markets improve over time, the deficit will reduce.” Dave Burbage told VB. He continued, “It must also be remembered that any deficit will not have to be met overnight (the assumptions span 40 years or more into the future) as this can be done through steps such as changes to contributions, over many decades.”
It’s unclear to VB what these “changes to contributions” might be. , so we’ve asked the council a few more questions to fill in some detail, but at the time of publishing this, haven’t heard back from them.
Update 16:55: Thanks to IWC for the following clarification of which contributors will be effected.
The short answer is both employees and employers. Employer contributions will rise as a result of the three-yearly review.
Changes to employees contributions require changes to regulations – there have been some limited changes in recent times resulting in, for instance, the better paid having to pay slightly more than their less well-off colleagues.
Image: Chris Isherwood under CC BY-SA 2.0
