Record £12bn surplus in council pension fund is slammed as 'utterly nuts' while taxpayers battle potholes and shoddy social care

A council’s pension fund for its workers has seen its surplus soar to what is believed to be the largest ever amassed in a UK-based retirement scheme.

Strathclyde Pension Fund has £12billion more in the kitty than it needs to pay the pensions of its near-300,000 members, its latest accounts show.

The record funding level will fuel the debate about who owns the huge surpluses being racked up in salary-based pension schemes from strong investment performance and excessive employer payments into them.

Strathclyde, whose £33billion of assets are administered by Glasgow city council, is the largest of the 86 town hall pension funds that make up the £550 billion Local Government Pension Scheme.

The LGPS was in deficit for years, but now has excess funds of at least £150billion, which analysts say is way above the buffer needed to absorb shocks like a stock market crash.

Council tax payers chip in about £2billion of the £10billion employers pay into the LGPS each year. 

Experts reckon cash-strapped local authorities should instead spend the money on services that benefit council taxpayers, such as filling potholes, emptying bins or providing better social care.

‘It’s utterly nuts and irresponsible to be squandering taxpayers’ money in this way,’ former pensions minister Ros Altmann told The Mail on Sunday.

She wants to see the 15,000 employers who pay into the LGPS – including school academies, emergency services and thousands of private sector companies providing council services – take a pension contribution holiday to ease the financial burden on them and to provide an immediate boost to local economies.

‘The LGPS is in massive surplus,’ she said. ‘Let’s stop adding to the problem when it’s not needed.’

John Clancy, a professor at Birmingham City University Business School, said: ‘It’s madness the surplus is just sitting there and will never be used to pay pensions.’

Strathclyde estimates that it has a funding surplus of 158 per cent, meaning its assets are worth £12 billion more than its liabilities – what it reckons it will cost to pay current and future pensions.

Contributions to Strathclyde’s scheme have been cut in recent years, yet funding levels continue to rise and could result in a £20 billion surplus next year, says Clancy.

The professor, who is also a former Labour leader of Birmingham council, adds: ‘This is clearly taxpayers’ money. And it’s happening everywhere. Pension funds have to get straight with the UK taxpayer, they can’t keep hiding this.’

The LGPS guarantees its 6.9 million members a pension based on their salary and their length of service when they retire.

Employers pay about 16.5 per cent of a worker’s salary into the LGPS, which is then invested in the stock market and other assets.

LGPS members contribute at least 5.5 per cent of their pay and, in return, receive a pension typically worth £5,000 a year at retirement – given many work part-time.

Strathclyde said it was using the £12 billion surplus ‘to massively reduce’ employer contributions from 17.5 per cent to 6.5 per cent for the next two years, saving them ‘around £500 million a year’.

Its surplus is equivalent to the estimated ‘headroom’ that the UK as a whole is left with when Chancellor John Healey unveils his maiden Budget in ten days’ time.

However, the Treasury dismissed suggestions that Healey might raid the LGPS again to help balance the books after £500million was found to fund a 3.5 per cent rise in teachers’ pay that averted strike action.

‘The LGPS will only be used to fund pensions,’ it added.