Kensington and Chelsea Cuts Pension Contributions Amidst Scrutiny

Amidst increased scrutiny over pension scheme costs, Kensington and Chelsea Council has slashed its contributions to staff pensions. The move comes despite warnings from its actuary that the cut is "inappropriate."

Suspension of Contributions

Effective April, the council will cease its 7.5% contribution rate for one year. This decision was made by the pension fund's investment committee, which determined that surplus funds could be reallocated elsewhere.

Financial Justification

Kensington and Chelsea's decision is partly driven by its commitment to keep council tax increases below the 5% cap. The £9 million savings from the contribution cut will be directed towards a fund for Grenfell Tower survivors.

Historical Deficit and Rising Contributions

In 2019, the Local Government Pension Schemes (LGPS) faced a £5.9 billion deficit, leading councils to increase their contributions. In 2022, approximately a third of English and Welsh schemes remained in deficit.

Surplus and Potential Reductions

Private pension schemes, on the other hand, now have an £85 billion surplus, creating the potential for contribution rate reductions. Kensington and Chelsea's intended contribution increase to 15% in 2025-26 has been scrapped, making it the only council with a funding level exceeding 200%.

Decision Rationale

The council's £2 billion pension fund chair, Quentin Marshall, emphasized that the surplus funds are clearly unnecessary for pension payments. He stated that the council opted to redirect these resources rather than seek funds elsewhere.

Grenfell Support

The £9 million savings from the contribution cut will be allocated to a fund supporting Grenfell Tower fire survivors and victims' families.

Implications for LGPS

Employer contribution rates in the LGPS are typically set triennially. However, councils can request reviews between valuations. Kensington and Chelsea's decision was made against the advice of Hymans Robertson, its actuary, who warned that the move was inappropriate.