The UK could be subject to massive council tax rises due to spiralling Local Government Pension Scheme (LGPS) deficits.

The stark warning comes from Gary Simmons, a partner in the government and public sector practice at PricewaterhouseCooper's (PwC), who told Pensions Age that he is concerned that the deficit, which is currently estimated to have hit £100bn, will take its toll on the UK economy and come at a time "when there is a perfect storm brewing rapidly for local government".

"If the markets stay unchanged until March next year [when the next official valuation is due], what does it mean for the contribution rate?" he asked. According to Simmons, up to as much as an extra £6bn per year for 20 years will be needed to make good the deficits over 20 years.

"This translates to a 30 per cent rise on council tax. It's not a pretty sight at all for local government."

One of the biggest debates surrounding LGPS, according to Simmons, is whether or not there is the potential to run them on the same unfunded basis as central government schemes. "That's very easy to say, but it's a question that could be asked. These are big entities, and these are complex entities to risk manage. And there are a lot of corporates out there that are saying this isn't a core business of ours, and the core businesses of local government are huge and vast."

Simmons believes there is the potential of running these schemes unfunded, and said it would be "a grand bargain to be had between local government and central government" when it comes to allocating assets with conditions: "We'll fund our pensions up to certain levels, but beyond that you pay for them. We feel it's a question than is gaining a bit of momentum."

But are these changes like to be made? Simmons is unconvinced: "I would have thought there is a very long road. But I think it's important that the debate is had. But it would be a very complex change to put through, particularly as you've got a hundred different schemes and many, many participants. But should the debate be had? Yes, it's a healthy one."

- Pensions Age March 2009

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