Ros Altmann is a former Pensions Minister who now sits in the House of Lords.

Local authorities spend around a quarter of the council tax they collect on pension contributions for staff.

However, their pension schemes have significant surpluses, so I believe these funds could be diverted to local services instead.

Councils' employer contribution rates are about to be set for the next three years, and there is a serious risk they will have to pay in far more than really necessary.

This could be a great opportunity to use pension surpluses to take the pressure off council tax rises, and avoid depriving local services of much needed funding.

Lady Altmann: Local government pension surplus can allow councils to take contribution holidays

The Local Government Pension Scheme is a defined benefit - typically called final salary or career average - scheme that has an obligation to pay pensions owed to council staff for the rest of their lives.

Council taxpayers fund the employers' pension contributions that cover most of the costs of the schemes.

But like other schemes of this kind it has benefited from a sharp fall in liability values, which means the amount it needs to set aside for these pensions is much lower than previously estimated.

This is because long-term gilt yields - the interest rate investors can get on lending to the Government by buying long-term UK bonds - have soared by around 3.5 per cent since 2022.

Pension fund surpluses have built up in the past few years, so there is now much more money in the LGPS than it is expected to need to pay future pensions.

The estimate of future long-term liabilities has fallen by around 50 per cent, partly due to the higher interest rates, lower inflation expectations, and because funding has benefited from strong increases in asset values too.

The LGPS for England and Wales was estimated at March 2025 to have a funding level of nearly 150 per cent. 

This represents a record surplus of around £150billion which far exceeds the expected costs of the promised pensions.

Local councils can afford 'contribution holidays'

The LGPS surplus can enable councils to take contribution holidays, diverting billions of pounds to spend on local needs and stopping never-ending council tax rises.

This can help boost regional growth, as well as reducing the central Government's fiscal deficit, as council calls for more funding will fall.

After years when councils have struggled with shortfalls in their budgets, this would free up new money for local services.