Deficits for local government pension schemes (LPGS) have more than doubled since the turn of the decade, according to analysis from actuaries at KPMG. The consultant estimates the aggregate LGPS deficit has soared by up to £50bn from £38bn to well over £80bn. Returns of 20 per cent have been outstripped by an increase in the value of the liabilities of more than 40 per cent as a result of an all time high in gilt prices, it says.

KPMG’s head of public sector pensions Steve Simkins said the figures meant management teams and their actuaries would be “scratching their heads” as they tried to avoid big contribution increases.

“In 2010 they were given a get out of jail card with the change in pension increases from RPI to CPI, but the latest market developments mean that it’s now back to the drawing board. There is no question that employer contributions will increase; the question is by how much?” Simkin said.

“The difficulty revolves around agreeing rates deemed by employers as affordable yet, at the same time, sufficient to tackle the overall LGPS deficit.”

The challenge comes as employers face a particularly difficult year ahead, he warned, as they confront explaining the move from final salary to career average benefits and a number of other changes to staff. The next 12 months would be the “busiest on record” for those running an LGPS.

“New governance requirements, reducing pension tax allowances and auto-enrolment are combining to put huge pressures on LGPS management teams at a time when local government resources are under strain,” he said. “The simple fact is this; to meet the 1 April 2014 deadline, it is crucial to start preparing now.”

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