HEREFORDSHIRE Council’s pension fund has an estimated deficit of £211 million – up by £52 million on the figure for this time last year.

Representing the difference between the estimated present value of the fund’s obligations (£500 million) and the assets it holds (£289 million), the shortfall now requires the council to commit some £7 million a year towards repayments.

The council, however, describes the 42 per cent deficit as “normal and proportionate” for a local authority pension funds and relating to falling returns on investments and employees living “significantly longer” than anticipated when the scheme was set up.

At the end of March last year, the estimated deficit net deficit on the fund – administered by Worcestershire County Council – was £159.4 million or  approximately 61 per cent the fair value of the assets.

The deficit does not have to be met immediately from the council’s reserves, but eliminated over time.

It is for the council to ensure that funding is set aside by the time the benefits come to be paid, with revised contribution rates intended to bring the fund into balance over 21 years.

Although the benefits will not be payable until employees retire, the council has a commitment to make the payments – and this needs to be disclosed at the time the employees earn their future entitlement.

At present, the council has included £7 million a year in its revenue budget to repay the deficit, as agreed with the fund’s actuaries.

This amount will be reviewed after the next full valuation of the fund due in March next year and based on assumptions about the likes of  mortality rates, salary levels and inflation.

BACKGROUND – Council’s rising pension deficit.

The pension fund position was last re-valued in March 2013.

Herefordshire Council has agreed with the fund’s actuaries that, in order to recover the deficit over 21 years, the employer’s deficit contribution increases to £7.6m by 2016/17.

The actuaries requested that the element of the employer’s contribution related to clearing the deficit is paid as an annual cash sum.

The employers service contribution rate increases from 11.7 per cent in 2013/14 to 14.6 per cent by 2015/16.