Nearly a quarter of council tax revenue—equivalent to £1 in every £4—is being allocated to what critics describe as “unjustifiably generous” staff pensions, according to new analysis. Over the past year, local councils contributed nearly £7 billion to employees’ pensions, a figure that dwarfs spending on several essential services.
Key findings
Data obtained through Freedom of Information (FoI) requests revealed that local authorities paid £5 billion into staff pensions last year, representing an average of 23.5% of their council tax revenue. When extrapolated to include councils that did not respond, the total amount spent on pensions is estimated at over £6.7 billion.
This contrasts starkly with spending on other public services, such as:
- £1.1 billion for libraries, culture, heritage, and tourism.
- £2.2 billion on emergency housing.
- £20 billion on adult social care.
For the average household, this allocation translates to over £230 annually going directly to council staff pensions.
Notable contributions
Hampshire County Council made the single largest pension contribution last year at £281 million, though this covered three years’ worth of payments. Birmingham City Council, which declared effective bankruptcy in 2023, contributed £141.7 million, making it the second-largest contributor.
Alarmingly, the FoI data revealed that 14 councils allocated over 50% of their council tax revenue to staff pensions.
The local government pension scheme
The Local Government Pension Scheme (LGPS) is one of the largest pension schemes in the UK, boasting 6.1 million members across England and Wales. It is a defined benefit scheme, guaranteeing payouts based on salary and years of service, rather than being reliant on investment performance or individual contributions.
Criticism of the system
Critics argue that such schemes are outdated and unsustainable in the current economic climate. Tom McPhail, a pensions expert at Lang Cat, stated:
“In today’s economy and the decline of private sector pensions, it is extremely difficult to justify the continued generosity of the local authority scheme. Private sector employers have long since moved away from such expensive commitments, but local authorities continue to rely on taxpayers to fund these pensions.”
John O’Connell, chief executive of the TaxPayers’ Alliance, echoed these sentiments:
“While households across the country face higher tax bills, vast sums are being used to maintain nest eggs most people could only dream of. These gold-plated pension schemes should be closed, with public sector benefits brought in line with the private sector.”
Defence of the scheme
The Local Government Association (LGA), representing councils, defended the pension system, highlighting the essential services provided by local government workers. An LGA spokesperson stated:
“Local government workers provide hundreds of essential services every day. With more than nine in ten councils experiencing staff recruitment and retention difficulties, the pension scheme helps attract and retain talent.
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“While local government pay is often lower than in comparable private sector roles, the pension scheme mitigates this and ensures public sector workers can avoid relying on welfare benefits in retirement.”
The broader context
Over the past 30 years, private sector pensions have seen significant reductions, with many companies closing defined benefit schemes due to cost pressures. In contrast, public sector pensions, including the LGPS, have largely maintained their generous structures, a disparity that has fuelled ongoing debates over fairness and sustainability.
Call for reform
The growing gap between public and private sector pension provisions has led to mounting pressure for reform. Critics argue that with councils facing financial strain and taxpayers burdened by rising costs, the time has come to reassess the sustainability of the LGPS.
Meanwhile, proponents of the scheme warn that reducing pension benefits could exacerbate staff shortages in local government, further straining essential public services.
Conclusion
As the debate intensifies, the allocation of council tax revenue to staff pensions remains a contentious issue. Balancing the need to attract and retain public sector workers with the financial realities faced by local authorities and taxpayers will likely remain a key challenge for policymakers in the years to come.
