West Midlands councils pump in millions to service £4 billion pension deficit

The West Midlands Pension Fund, which covers all the councils in the Black Country and Birmingham as well as housing associations, colleges and staff working for the West Midlands police and crime commissioner, has seen its deficit rocket since 2010 when it stood at £2.6bn.

Now it is working on a 'deficit recovery plan' which it says requires employers to make 'additional contributions to correct the shortfall'.

The process could take up to 22 years.

Staffordshire's public sector pension fund, administered by the county council, has a deficit of £976m, but this is an improvement on last year when it was £1.2bn.

Public sector employers in the West Midlands previously paid an average 11.9 per cent of their workers' pensionable pay plus £139 million a year into the fund.

The new arrangement sees them putting in 13.3 per cent plus £205m a year, rising at an inflation busting 4.35 per cent a year.

Wolverhampton City Council, which is making 2,000 job cuts and trying to save £123 million, is putting in a lump sum of £9m a year to clear its share of the deficit but this will have to rise to £10.9m by 2016. And finance boss Councillor Andrew Johnson said it will increase again to £21.5m after that.

He said government funding cuts, which forced councils to make workers redundant, were partly to blame.

"By law everyone who works for a council who is made redundant over the age of 55 is entitled to their pension," he said. "We've had to take the strain on the pension fund."

Sandwell Council will have to put in £11.6m this year, rising to £19m by 2016/17 while Walsall Council has to put in £14.2m, rising to £15.5m a year.

Dudley Council's contribution will require a lump sum of £7.4m this year, rising to £10.9m within two years.

West Midlands Fire and Civil Defence Authority will see its lump sum increase from £1m to £1.1m.

Transport body Centro, which is having its levy cut by councils, has to put in £6.8m a year.

The deficit affects colleges too. Dudley College of Technology will be expected to put a lump sum of £276,000 this year, rising to £300,500 within two years.

Wolverhampton College will see its lump sum go up from £450,000 to £490,000 while council housing group Wolverhampton Homes will be expected to put in £234,100 by 2016/17, compared with £215,000 this year.

The number of people paying into the pension fund has fallen from 102,731 in 2010 to 87,724 last year.

There were also 77,339 people drawing their pension compared with 66,242 in 2010.

In a report, actuary Paul Middleman said: "The deficit of £4,205 million could be eliminated by a contribution addition of £205m per annum increasing at 4.35 per cent per annum for 22 years."

Rachel Howe, head of governance for the West Midlands Pension Fund, said: "The West Midlands Pension Fund reported a funding level of 75 per cent as at March 31 2013, following the actuarial valuation. This funding level reflected an allowance for post valuation market changes and confirmed that the funding level from 2010 had been maintained with an increase in underlying assets and liabilities. The employer common contribution rate increased from 11.9 per cent in 2010 to 13.3 per cent in 2013.

"The experience over the inter-valuation period has largely been positive, with improvements in the position due to positive investment performance, the impact of contributions paid by employers and lower than expected pay increases for active members. The shortfall increased from 2010 is due principally to reductions in real gilt yields, the impact of a maturing membership profile and changes to life expectancy.

"In order to target a 100 per cent funded position the maximum deficit recovery period was set at 22 years. In line with this maximum recovery period, the employer contributions required will be £205million per annum increasing at 4.35 per cent per year to eliminate the deficit in 22 years."