Almost a quarter of council tax revenue is being spent on funding staff pensions, according to a new analysis, sparking calls for reform amid concerns over the scheme’s sustainability.
Figures compiled by The Times through Freedom of Information requests to over 300 councils reveal that £7 billion was funnelled into the Local Government Pension Scheme (LGPS) last year, equivalent to nearly £1 of every £4 raised through council tax.
However, the data highlights a disparity in spending, with some councils dedicating more than half of their council tax income to pensions.
Local Government Pension Funding Amidst Financial Challenges
Among the councils scrutinised, Birmingham City Council—currently grappling with financial distress after effectively declaring bankruptcy—paid £141.7 million into staff pension pots last year.
Across the 254 councils that responded to the inquiry, a total of £5 billion was allocated to the LGPS. Extrapolating from these figures, The Times estimated that the overall sum across all councils exceeded £6.7 billion.
The LGPS, a defined benefit pension scheme, guarantees an inflation-linked income for life after retirement. While this type of pension is rare in the private sector due to its high cost, it remains standard in local government employment. Critics argue that maintaining such schemes is becoming increasingly untenable for taxpayers.
Breakdown of Local Pension Contributions (Example Data)
- Total estimated contributions across all councils: £7 billion
- Proportion of council tax allocated on average: 23.5%
- Highest proportion among some councils: Over 50%
- Birmingham City Council contribution: £141.7 million (despite financial challenges)
Rethinking the Sustainability of Local Government Pension Schemes
Tom McPhail, a pensions expert at financial advisory firm Lang Cat, described the LGPS as “generous” and said its continued provision was difficult to justify.
“In the context of today’s economy and the decline of private sector pensions, it is extremely difficult to justify the continued generosity of the local authority scheme,” McPhail said.
He compared the situation to the private sector, where defined benefit pensions have largely disappeared, replaced by less expensive defined contribution schemes. These require employees to manage their savings and retirement income, unlike the LGPS, which relies on taxpayer funding.
“Private sector employers became at first unwilling and then unable to meet the cost of such generous pensions,” McPhail added.
“Yet the public sector, and in this case, the local authority scheme, has just sailed blithely on regardless, relying on the captive funding of local authority taxpayers to subsidise their pensions.”
He called for reforms, saying: “We can no longer justify to our citizens, to our ratepayers, to our council-tax payers, draining them of this money to support these pension schemes. The moral case for it is very straightforward.”
The Role of LGPS in Addressing Recruitment Challenges in Local Government
The Local Government Association (LGA), which represents councils, defended the scheme as a vital tool for retaining staff in the face of widespread recruitment challenges.
“Local government workers provide hundreds of essential services every day. However, more than nine in ten councils are experiencing staff recruitment and retention difficulties,” an LGA spokesperson said.
They added that the pension scheme helps to offset lower pay in local government compared to equivalent private sector roles. “The scheme can mitigate that while helping public sector workers avoid needing welfare benefits in retirement.”
A Broader Debate on Public Sector Pensions
The debate over council staff pensions taps into a wider issue concerning the fairness and sustainability of public sector pensions in comparison to those in the private sector. Defined benefit schemes, which have virtually vanished in private employment, remain a significant cost burden in the public sphere.
Although, supporters argue they are a necessary part of attracting talent to vital but often lower-paid public sector roles.
However, critics like McPhail maintain that the reliance on taxpayer funding is unsustainable. The financial strain on councils, combined with mounting economic challenges, has reignited questions about whether such pensions can—or should—be maintained in their current form.
