Birmingham City Council’s battered balance sheet is set for a further £88.5 million blow with a huge bill to plug a pension fund deficit.
The authority – which last week revealed a further £85 million of cuts and 1,000 job losses – will have to find the cash to plug a gap in its pension fund over the next four years.
It is already under pressure from falling government grants and a £1 billion-plus bill for historic equal pay claims – which also add to the pension burden, with the city council’s share of the West Midlands Pension Fund having a £2 billion deficit.
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Labour councillor John Clancy said the fund was spending too much on investment management fees – £27 million in the last two years – and wanted to see more money spent locally.
Coun Clancy said he didn’t think the additional funds from the city council were warranted.
He said: “The fund is not in crisis. It was in surplus last year.
“I am not saying the funds shouldn’t be asking Birmingham City Council for the money, but first of all we need to see it being used better.
“We are paying far more every year to investment managers than they are in West Yorkshire, for example, and they are getting a better return.”
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Documents seen by the council’s cabinet this week show the additional £88.5 million deficit contribution payment will be staggered over four years. In the 2015 financial year, the council will have to pay out an extra £17.7 million, then £23.5 million in 2016, £23 million in 2017 and £24.3 million in 2018 – on top of about £100 million a year it already pays in.
The pensions black hole will be exacerbated by legal claims over equal pay totalling more than £1 billion, which inflate the final salaries of some current and former workers.
The fund said it had thus far had 112 adjustment requests from people who had seen their pay rise as a result of equal pay cases. The additional costs come a week after the council revealed cuts to its Service Birmingham contract and Marketing Birmingham as well as a further 1,000 jobs to save £85 million from its 2015 budget.
Council leader Sir Albert Bore has said the council’s funding will have reduced by £822 million between 2010 and 2018 – more than half of its controllable budget.
Coun Clancy said pension money from local authority workers could be used better, and cited the fact that £27 million has been spent in two years on investment management fees, while the West Yorkshire Pension Fund, which is a similar size to the West Midlands, paid out just £1.8 million a year.
He added: “We are talking about a £15 million or £16 million-a-year call on Birmingham City Council and I think personally that they could make up that gap by reducing the spending on investment managers.
“They run the fund as if it was a private sector fund, but the reality is the council employs thousands of people and it is going to go on employing thousands of people. There is a £10 billion fund there that is hardly being used.”
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Mr Clancy wants to see the pension fund used to invest in the West Midlands and encourage growth.
A spokesman for the fund told the Post: “The WMPF has maintained low contribution rates for a long time, with consideration given to affordability and stability for participating employers.
“The current, unprecedented and sustained low interest rates have impacted funding levels and the WMPF is in consultation with employers in order to put in place the appropriate recovery strategy.
“The fund has, however, delivered strong investment performance. In the latest financial year, to March 31, 2013, it achieved a return of 12.4 per cent, ahead of its benchmark return of 11.5 per cent. Over three years, the return generated was 7.3 per cent per annum, which compares favourably with the benchmark of 7.1 per cent.
“The WMPF would caution comparing the performance and headline fee data with that of other funds as these may differ significantly for proper reasons, especially over short term time horizons.”