Four councils have asked Teesside Pension Fund to review their pension contribution rates ahead of the 2025 valuation outcome.

The finance directors of the four main councils in the fund – Hartlepool, Middlesbrough, Redcar & Cleveland and Stockton – have written to request a contribution rate review, council documents show.

The fund’s former head of pensions governance and investments Nick Orton, who has since moved to Tyne and Wear Pension Fund, wrote that the councils do not meet the criteria which would trigger a review of their rate by the fund, meaning the review will be treated as requested and funded by the four councils.

“Initial meetings have taken place to understand the rationale and any information that may be relevant in respect of the review,” the documents state.

A pensions committee meeting on 12 March to consider the councils’ request, however, did not go ahead as planned as it was not quorate, mallowstreet understands.

Orton wrote that, like all employers in the fund, the four councils will have their employer contribution rates assessed as part of the 31 March 2025 valuation, with new rates applying from 1 April 2026.

After the 2022 valuation, whole fund primary contribution rates – for meeting the cost of future benefits for active members – were at 19.7% of salary, higher than the 17.2% three years earlier because of high inflation. However, the secondary contribution rate, which accounts for deficit or surplus, decreased thanks to strong investment performance. Hymans calculated the funding level as at March 2022 to be 116%, saying the position has improved further since then.

The councils’ move to ask for a contribution review mid-cycle follows news earlier this year that the Royal Borough of Kensington & Chelsea decided to zero-rate its contributions for a year, with the money going towards a Grenfell Tower relief fund. The decision to suspend contributions caused a stir and was made against the actuary’s advice. 
 

 

Market conditions are not normally considered a valid reason to change contribution rates mid-cycle. A year ago, the Local Government Pension Scheme Advisory Board told funds and employers that pension surplus did not justify reducing employer contributions, amid average funding levels for LGPS funds in England and Wales reaching 107% at the 2022 valuation.

While the aggregate surplus in private sector defined benefit schemes has prompted the government to say the money should be accessed before wind-up to benefit the economy, no mention has been made of doing the same with the surplus in the Local Government Pension Scheme, which remains open to accrual.

Councillors in cash-strapped areas are finding it increasingly difficult to accept putting away large amounts as pension buffers while the local population feels the effects of struggling services, and as tax rises are in effect being shifted to a local level. The National Audit Office previously said there was a 49.1% real-terms reduction in government funding for local authorities and a 28.6% real-terms reduction in local authorities’ spending power between 2010-11 and 2017-18. Several councils have gone effectively bankrupt, resulting in deep cuts to public services.