Value of council pension pots hits £550 BILLION

The value of the local government pension scheme (LGPS) has surged to £550 billion as a row rages about turning it into one of the world’s biggest sovereign wealth funds.

Unlike pensions for doctors, teachers and civil servants – which are paid out of general taxation – the LGPS is funded by thousands of employers who pay into the scheme that mainly invests in shares and bonds.

In return it guarantees seven million council workers past and present a ‘gold-plated’ retirement income linked to their final or average salaries.

The LGPS in England and Wales was valued at £400 billion a year ago but if the Scotland and Northern Ireland equivalents are included it is estimated to be worth £150 billion more as stock markets hit record highs.

Reform UK deputy leader Richard Tice wants to merge the town hall schemes into a sovereign wealth fund – which would make it the eighth biggest in the world (see table).

Sovereign wealth funds are mainly based on windfall revenues their governments have received, including from oil and gas production in states such as Norway, Saudi Arabia and Qatar.

Tice says the fund would ‘patriotically back Britain’ by pumping an extra £100billion into UK-listed shares. The sum invested in domestic assets such as infrastructure and strategic sectors such as steel would also double to a third of the portfolio.

He admits this would see lower returns for the scheme, which has grown 7 per cent a year on average after fees in each of the past three decades, though recent performance is mixed. Tice says the LGPS is ‘underperforming hugely’ by investing in ‘woke nonsense’ and wasting billions in high fund management fees for City advisors.

‘It’s a huge gravy train and it’s appallingly managed,’ he said.

Reform, which is expected to do well in next month’s local elections, already controls some of the pension committees of the dozen councils it leads.

The LGPS also has a record surplus – the value of its assets minus the current cost of paying pensions – of £148 billion with each member scheme in the black for the first time, according to industry consultant Isio.

That has led to calls for local authorities, school academies and housing associations, who pay £10 billion a year into the LGPS, to cut their contributions to curb council tax rises.

Improved funding levels provided ‘strong support for reducing employer contributions when many LGPS employers are under significant financial strain,’ said Isio’s Steve Simkins.

Employers typically pay about 17 per cent of a council worker’s salary into the LGPS, with the employee contributing 6 to 7 per cent – more than in most private sector workplace pension plans.

Reform wants to shut the LGPS to new joiners to cut costs while preserving past pension pledges.

The party is seeking to go further than Labour’s plan to merge local authority pension funds into six pools to boost growth.