The True Cost of Council Employees

Mike Schofield, of the Isitfair? campaign which protests against the Council Tax, works out the pension costs for the Town Hall fat cats.

Reports about the number of council employees being paid £50,000, or more, do not tell the full story with regard to the total, taxpayer-funded cost of employing these people.

This is because these reports were based only on the salaries paid and did not take into account other costs for which the taxpayer also has to foot the bill and in particular costs associated with employer (i.e. taxpayer) contributions to the employees’ pensions. These other costs add considerably to the total as shown in the examples below.

Whether all this money – the salaries, the employer pension contributions, and the employer NIC - comes from council tax or from general taxation is neither here nor there. Whichever way you look at it - it is all OUR money – and, under threat of legal action, we are all forced to pay it from income on which we have already paid our own income tax, NIC, VAT, and other taxes.

And – to cap it all - from what is left of our income we are also expected to make our own pension arrangements.

Gross Annual Pay £50,000

Pension Contribution. £3,600. (7.2%.)  Note 1

Contribution to Employee Pension £9,050, Note 2

NIC £4,396  Note 3

Total Cost to the Taxpayer £63,466.

Gross Annual Pay £100,000

Pension Contribution. £7,500. (7.5%.)

Contribution to Employee Pension £18,100

NIC   £10,796

Total Cost to the Taxpayer  £128,896

Gross Annual Pay £200,000

Pension Contribution. £15,000. (7.5%.)

Contribution to Employee Pension £36,200

NIC £23,596

Total Cost to the Taxpayer  £259,796

Notes

1. Employee pension contribution. In 2008-09, and depending on how much they were paid, council employees contributed between 5.5% and 7.5% of their gross annual pay into the Local Government Pension Scheme (the LGPS). The more a person was paid, the greater the percentage they contribute.

2. The employer’s contribution to the individual’s pension. The level of employer contributions is determined by individual pension fund actuaries and is recalculated every three years. The level of contribution varies across the country, and from authority to authority, but as an example, in 2008-09, the employer’s (i.e.
taxpayer’s) contribution to the pension fund for each employee at Hampshire County Council was 18.1% of the employee’s gross pay. (The employer contribution increased to 18.6% in 2009-10 and will be 19.1%
in 2010-11 and will then be reviewed to determine the rates for the following three years.)

3. The employer’s National Insurance Contribution (NIC). NIC is paid by most employed people and also by the employer. The amounts to be paid are determined based on current Government legislation. The LGPS is what is known as a contracted-out scheme meaning that members do not participate in the Second State Pension (S2P – previously known as the State Earnings Related Pension Scheme or SERPS). Because the LGPS is a contracted-out scheme, both the employee and employer pay lower amounts of NIC than would be the case if they were contracted-in.