Wandsworth Council’s financial management is again under question after auditors discovered its pension fund has gone from a £350m surplus to over £7m debt in just one year.
The sharp reversal has raised concerns about financial stability, employee pensions, and the council’s risk management just a week after an independent councillor slammed the Labour-run administration for the “fiction” that it was freezing council tax rates, and the leaders of the council were accused of creating a “ticking time-bomb” with £1.9bn in debt.
The pension deficit may force Wandsworth Council to increase pension contributions which would require taking money away from services like social care, housing, and education. It could also lead to budget pressures, service reductions, or even tax increases.
What Caused the Sudden Change?
According to the council’s latest audit report [pdf] – released just prior to a quarterly Audit Committee meeting – the deficit stems from a valuation of the council’s pension pot last year which reviewed the assumptions used to estimate future pension obligations.
Adjustments to the discount rates, inflation projections, salary growth, and life expectancy led to what was a £356.2 million surplus in 2022/23 turning into a £7.2 million liability in 2023/24. The implications could be enormous.
Auditors Ernst & Young flagged concerns about the reliability of the previous year’s pension fund reporting, noting, “we were unable to get assurance over that due to the triennial valuation.” As a result, they issued an “audit disclaimer” that they could not fully verify the pension fund’s financial position.
Adding to the pressure, investment returns were lower than expected, and an increasing number of pensioners drawing benefits have further strained the fund.
Potential Impact on Wandsworth’s Finances
The deficit is another big financial pressure on the council at a time when it has already been criticised for racking up debt, misleading residents about its finances, and tapping into council reserves to fund day-to-day activities.
Not only that but the council’s executive recently gave itself additional powers over the fierce objections of opposition councillors, and reduced the amount of scrutiny that bodies like the Audit Committee will be able to provide in future.
Since the council will have to make good on its pension promises, a big deficit would require it to increase contributions – by potentially hundreds of millions of pounds. Unless there is a big economic bump nationally that helps boost the pot’s investments that would lead to either cuts in services or increases in tax.
For council employees, there is growing uncertainty about their future pension benefits if the funding gap is not addressed soon. The auditors warned that the “24-25 opinion is unlikely to be clean because of the nature of disclaimed audit opinions” — meaning that the issue will need to be subject to ongoing financial scrutiny .
What Happens Next?
The council plans to work with the London Pension Fund Authority (LPFA), auditors, and actuarial advisors to reassess the fund. The next valuation in 2025/26 will be critical in determining whether the pension fund stabilises or requires further action.
For now, Wandsworth Council faces a crucial challenge: ensuring pension security while managing its budget. Whether this deficit is a temporary issue or a sign of deeper financial trouble remains to be seen.
