Vir Cantium

I'm right, you know …

Local Government Pensions: People in Glass Houses Shouldn’t Use Trebuchets

The Daily Mail (which I would point out is not my newspaper of choice) has got the Left worked up over a claim they repeated again yesterday.

Taxpayers had to find almost £6billion to maintain the pensions official accounts show – a sum that swallowed up nearly 28% of the council tax collected

This has upset the ironically named* public sector campaign group The Campaign for Pensions Justice.

Oh dear! The 25 per cent council tax fallacy is back

[…]

Readers are no doubt meant to think that councils are now spending more than a quarter of their funds on pensions every year.

But this is a trick.

Nice wickerwork on that straw man there!

Councils do not just get money from council tax-payers. They also get a business rate from local companies and income from charges such as parking charges and fines. But their biggest source of income – at least for most – is income from central government. These together pay for council spending – a big part of which will be on staff costs given that much of what councils do is pretty labour intensive.

OK, the article simply says that £6bn is equivalent to 28% of council tax. The CPJ aren’t denying this, or maybe they are, given the title of their blog post. Anyway, the implication could equally be that without that £6bn (an unlikely situation, granted) council tax would be reduced by 28%. Also true.

Unfortunately the CPJ aren’t too careful with their own facts. Councils don’t ‘get’ business rates; they collect the rates, which are then remitted to the government, who then redistribute that money around the country. Some councils do well out of the deal, some not. The system is due to change soon, but it’s a bit rich for the CPJ to criticise the Daily Mail for a lack of precision with the facts.

However, all this is trivial compared to the hypocrisy of the Left in making some of their own claims on the subject of the Local Government Pension Scheme (LGPS), which are far more misleading than the Daily Mail piece. Let’s look at just the first point from here:

Together the 101 LGPS funds hold more than £120billion in investments and assets, enough to pay benefits for over 20 years.

As the CPJ might put it, ‘readers are no doubt meant to think that’ there is nothing to worry about. ‘No black hole here – in fact, we could stop paying contributions right now and sit back and wait for retirement.’

The GMB did a more recent ‘study’ on the subject here which repeats the claim:

Providing participation levels do not fall the overall picture of the LGPS from the 2010 actuarial valuations shows there is enough funds to pay all pensions for the next twenty years GMB study shows

This is based on a crude aggregation of the actuarial valuations of the local schemes (excluding Scotland). Clearly, that is fine as long as everyone then drops dead after 20 years.

However, even by the GMB’s own figures the LGPS has a collective deficit of £38bn. That is the funding gap that councils and other involved bodies are having to make up over and above the regular employers’ contributions, as they have been for years. That those subsidies are having to be paid, both in the past and decades into the future, gives the lie to any claim of sustainability. That is why nearly all (if not all) private sector final salary schemes have been closed.

The reader may have noticed that, critically, that GMB claim is prefaced with the following words:

Providing participation levels do not fall…

That is at the heart of the sustainability issue. Ponzi schemes are ‘sustainable’ as long as new ‘investors’ continue to join the scheme at a greater rate than others are withdrawing their ‘investment’. As the GMB implicitly admit, even if participation rates remain steady the thing falls over after 20 years.

Remember that this is just for the local government pension scheme which, unlike many public sector schemes, is partially funded. The picture is more dire for most of the other schemes.

Back to the CPJ (slightly abridged):

This … piece is a brilliant example of a … story that is designed to mislead. None of the facts are untrue in themselves, but they are presented in a way that will lead readers to come to the wrong conclusion.

Quite.

* Ironic if you’re one of the many who cannot afford to build up a pension entitlement that would match that in public sector, yet still has to pay to fund those public sector pensions. Some ‘justice’.

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