Pensions black hole could lead to jump in council tax

• THE 16,423 members of Islington Council Pension Fund have not been told that it needs £1051.9million to fund its long-term pension obligations but has only £536.1million in shares, bonds and cash.
Precautions have not been taken against the boom-time roof falling in, as it did in the autumn of 2007 and the pension fund lost heavily in the credit crisis.
Blind Freddy would have sensed the economic crash coming, what with the then Chancellor Gordon Brown allowing the British economy to rip, along with a housing bubble fueled with 125 per cent mortgages and self-assessed valuations.
The £1051.9million of pension liabilities is not mentioned in the summary annual report – only that “a funding review update ... shows a funding level of 51 per cent”.
That “51 per cent” represents the £536.1million of assets stated in the report. The 49 per cent black hole can then be calculated at £515.8million. This adds up to £1051.9million liabilities. Members would have to work that out for themselves. The vital percentage is tucked away on page 11.
This black hole has ballooned from just under £200million three years ago to the staggering £515.8million at end of the last financial year.
This is extremely worrying, given that people are living into their 90s, as was pointed out by the council official who pays out the pensions, Steve Rogers, at the annual meeting on December 8.
Council tax-payers will need to watch carefully this pensions black hole as the Chancellor, Alistair Darling, said last week that state contributions to pensions for public sector employees, including local government, will be capped by 2012.
That could mean the council would have to raise council tax as it is required to increase its contributions to keep the scheme funded.
Investments were not switched into government bonds and interest-bearing deposits at a time when other councils moved away from the share market. The council pension fund stayed mostly in shares, and was still invested 70 per cent in shares at March 31. These had fallen by a huge 25.8 per cent. The 30 per cent in bonds eased only 0.2 per cent.
But worse still is that for 10 years the council pension fund has performed below the average for all local authority pension funds in England and Wales.
That means many other council pension funds have done much better than Islington’s. Results are measured independently by City firm WM Performance Services.
Fund members are entitled to know why over 10 years remedial action to get performance at least above the England and Wales average has not been successful (Scotland is monitored separately).
Enough money came in, £62.5million, to meet obligations of £38.7million, but it is the long term that council taxpayers have to worry about.
Unison and the GMB, the two unions that have non-voting membership of the sub-committee, need to take independent advice about the overall management and strategy of the pension fund in view of the 10-year below-average performance.
So, too, the 22 other bodies whose employees are fund members such as Aquaterra, Homes for Islington, Circle 33 Housing Association and three EC1 Tenant Management Organisations: Braithwaite, Brunswick and Pleydell.
LEO CHAPMAN
Dufferin Street, EC1