TAXPAYERS FOOT £1BILLION BILL TO PAY FOR PENSIONS OF COUNCIL STAFF RETIRING EARLY

First published by: This is Money

Early retirement for town hall workers has cost taxpayers £1billion over the past three years, it was revealed yesterday.

Councils topped up the pensions of about 40,000 staff leaving before their official retirement dates. The costs mean that each council worker in England and Wales allowed early retirement on grounds of redundancy or ill health has cost an extra £25,000 on average. Pressure: David Cameron, already under pressure for the tax decisions, will face more anger from taxpayers on council worker's early retirement pay

The early retirement bill – which costs the equivalent of £50 for a typical Council Tax payer has been condemned by Council Tax protest organisations and taxpayer pressure groups. The scale of the spending came to light after the TaxPayers’ Alliance claimed there was a £54billion black hole in council pension funds which could have to be met by a rise in Council Tax, as reported by the Mail yesterday.

Since 2,000 local authorities have been required to make special ‘pension strain’ payments whenever a staff member leaves early on grounds of redundancy or ill health. The payments were introduced following a highly critical report by the Audit Commission watchdog, which complained about the high level of council early retirements and said ill health retirements were often unnecessary. 

Pension strain payments are designed to compensate the 

Local Government Pension Scheme for the extra cost of paying a full pension to a worker who has not completed his or her programme of contributions. Inquiries by the Daily Mail under the Freedom of Information Act revealed some local authorities are paying millions a year to top up pension funds.

In the financial year ending March 2011, Bolton paid out £4.45million; Cheshire East £2.7million; Gateshead £3.5million; Hertfordshire £6.3million; Islington £2.85million; Tower Hamlets £3.4million; Stoke-on-Trent £3.1million and Wiltshire £2.4million.

The pension strain payments total was just over £450million among the 209 local authorities in England and Wales who provided figures for the three financial years up to last March. But 167 local authorities – including a number of large county, metropolitan and unitary councils likely to have paid high bills – failed to give figures. And, even if their payments were no larger than those who did give figures, it would mean the bill to taxpayers in England and Wales has been at least £800million over the past three years.

Scottish councils which gave figures have paid £108million over the past three years, bringing the likely full total, including payments by councils which did not reply, to £1billion. Bills: Taxpayers will be unhappy to know that town hall workers taking early retirement hikes up their bills.

This means a typical case of early retirement from a council job through redundancy or ill health for someone aged 55 or over costs the taxpayer a full pension, a lump sum likely to be similar to the employee’s annual salary plus £25,000 in strain payments paid in compensation to the LGPS.

The scale of payments triggered demands for full disclosure of the cost of early retirements.

Christine Melsom, of the Is It Fair? Council Tax protest organisation, said: ‘What may have seemed fair years ago, when salaries compared with the private sector were low, is now just an unacceptable perk for local government employees. ‘Things have got to change – not next year or the year after but now. We as taxpayers can no longer afford to maintain these levels of payments.

‘Councils have paid and will be paying out thousands of pounds to employees, some of whom will never have to work again. But how many of those receiving extortionate payouts are being re-employed as consultants or moving directly into another post elsewhere?’

Council workers joined a public sector workers’ strike in November aimed at maintaining final salary pensions and keeping contributions low. Early retirement spending has let some workers leave with full pensions aged 55.

The Local Government Association, the umbrella body for councils, said costs were rising because local authorities were having to shed staff. LGA Workforce Board Chairman Sir Steve Bullock said: ‘These payments are made to cover the pensions of those forced into retirement by ill health or redundancy. 

As good employers it is right that we support those pension fund members who have been incapacitated by illness.  ‘The costs associated with redundancy are indicative of the fact that local government has dramatically downsized to save money. Since 2008 the local government head count has been reduced by nearly 10 per cent.

‘This has caused a short-term spike in pension costs but the payments are one-off with no ongoing liability.’

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