Scientists like Stephen Hawking define a black hole as a concentrated area of mass so immense, that the mammoth force of gravity denies anything within a certain area around it from passing. Such scientists say black holes are created in space by the collapse of a red super giant star. As these stars reach the end of their lives, an imbalance of inward and outward pressure forces the star to collapse.
There are comparisons drawn by the press between these scientific analogies and the pensions’ deficit experienced in Local Government. Latest research from Anthony Kimber, an independent financial consultant, predicts the gap in the pensions deficit has grown in UK Local Government (including Northern Ireland, Wales and Scotland) from last year to this. The size of that gap Mr Kimber estimates…?
From £39.9 billion to £50.9 billion. Taking the black hole analogy, this is why the press apply the description to Local Government pensions.
The larger the local authority, often the larger the shortfall – for example, Birmingham City Council faces a deficit of £1.06 billion.
Of course, care needs to be taken when addressing these figures as it would mean every single member of the Local Government Pension Scheme retiring tomorrow to make a call on the fund simultaneously. The pensions fund is also linked to investments – so like any business investment these investments are subject to market forces and can go up, or down. We sincerely hope that with the glimmer of an economic recovery there will be an upwards performance. This is a complex issue however, as increased life expectancy, as well as the prospect of reduced public sector spending, are important factors that will put further strain on the pensions fund.
For many of us (me included) who have paid 6% of our salary into the pensions fund over many years, these figure are worrying. So what can we do? Increase contributions from employees? Create a two-tier system where new entrants no longer have a final salary scheme? Ask employers to increase contributions when they’re already strapped for cash?
I expect there’s no easy answer otherwise it would have been forthcoming already – but I’d love to hear your views, click on the ‘leave a comment’ box underneath the headline to let me know what you think.