Taxpayers 'fleeced' in Birmingham City Council pension fund blunder
Britain's largest local authority overpaid more than £600 million into its pension fund after being ordered to pump the emergency cash into a hole that 'never existed' leaving taxpayers 'fleeced', its former leader claimed this weekend.Birmingham City Council, which until last week was run by Labour for 14 years, declared itself effectively bankrupt in 2023 after being handed a huge bill to settle historical equal pay claims made by thousands of female workers.It made swingeing cuts to public services to cover the costs in a move that led to the ongoing 14-month bin strike.However, the cash-strapped council would have staved off bankruptcy but for an accounting blunder by its pension fund managers that led to unnecessary top-up payments into the scheme, said former council leader and public sector pensions expert Professor John Clancy.'It's scandalous but the greater scandal is the lack of public scrutiny that allowed this to happen,' he told The Mail on Sunday.Clancy claims West Midlands Pension Fund, which manages the council's retirement plan, miscalculated over a decade how much it should pay into the pot to repair an apparent funding shortfall in the scheme. 'Fleeced': Birmingham City Council overpaid more than £600 million into its pension fund after being ordered to pump the emergency cash into a hole that 'never existed'The formula – known as the discount rate – is based on the expected return on investments such as equities and bonds, which in Birmingham's case averaged a decent 6.5 per cent a year.But the fund's managers used a much lower discount rate of over 4 per cent, meaning its liabilities – the current cost of paying future pension promises – looked much larger than they should have been, plunging the council's fund into the red.Birmingham City Council and hundreds of other employers were told to increase their contributions to the pension fund to eliminate the illusory deficit.West Midlands Pension Fund is part of the £550 billion local government pension scheme (LGPS), which pays its 7 million council workers past and present a guaranteed pension based on their final or career average salary.The LGPS is increasingly under the sway of Reform UK after making big gains in last week's local elections. It wantsto turn the scheme into a sovereign wealth fund that would 'patriotically back Britain' by investing in home-grown companies and projects.Reform's Richard Tice also wants to use some of the LGPS' £150 billion surplus to cut council tax by reducing town hall pension contributions. Latest figures show West Midlands Pension Fund had a £4.3 billion surplus last year, of which £1.1 billion belongs to Birmingham, calculates Clancy, who led the council between 2015 and 2017.More than half should be handed back to taxpayers who were 'fleeced', he argues.West Midlands Pension Fund now accepts 'the pension fund assets were increasing by 6.5 per cent a year, meaning a deficit never existed because they should have used that figure every year,' he added.The West Midlands Pension Fund said it 'did not recognise the figures quoted' without elaborating, adding its approach was 'informed by independent professional advice' and it operated 'within a robust governance framework'.'Some of the commentary referenced does not accurately reflect the regulatory framework, statutory valuation process or long-term responsibilities of the fund,' a spokesman said.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
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Taxpayers 'fleeced' in Birmingham City Council pension fund blunder
