Birmingham City Council overpays £500m into pension fund because of a miscalculation, report claims

• ITV News Central's Mark Gough reports on the cash-strapped council that's thought to have overpaid more than £500m into its pension fund

Birmingham City Council has overpaid more than half a billion pounds into its pension fund over the last ten years because of a miscalculation by the pension fund managers, according to a report by two academics seen by ITV News Central.

It comes amid celebrations from campaigners as the authority settled an equal pay claim - for hundreds of millions of pounds less than expected.

But it's sparked questions over whether the council could have avoided the effect of bankruptcy, which has meant sweeping cuts to council services across the board.

Birmingham City Council puts money into its pension fund, so there is enough in there to pay staff their pensions in years to come.

It is managed by the West Midlands Pension Fund, a spin-off of the old West Midlands County Council which handles the pensions for all seven metropolitan councils in the West Midlands, including Birmingham.

A report by two academics, David Bailey from the University of Birmingham and John Clancy from Birmingham City University (who is also a former leader of Birmingham City Council) said the fund managers used the wrong interest rates to calculate how much the fund would grow by - known as the Discount Rate.

John Clancy said: "The discount rate they were using was 2%, which was a corporate bond rate. The problem is that was a ridiculously low figure, over the last 25 years, it's never been anywhere near that. And the average it's been at over over the last 25 years has been about 6%."

David Bailey said: "The West Midlands Pension fund got the calculations wrong by basically using an interest rate which was historically very, very low, which, when they did the calculation, suggested their fund was in big deficit."

Based on this calculation, the pension fund then told the councils how much money they needed to hand over to top up the fund, so it remained solvent.

In Birmingham's case, it's put £1.2 billion into the pension fund over the last ten years. £547 million of that is the top-up. But the academics say this was £547 million the council didn't need to hand over.

The West Midlands pension fund is now actually in surplus by about £1.5 billion. The report's authors believe £400 million of that is Birmingham's money, money that may well have helped the city stave off being declared effectively bankrupt.

Mr Clancy added: "It wouldn't have been bankrupt, effectively bankrupt in 2023, because my calculation was that that there would have been probably a headroom of about half a billion pounds in the council's accounts...They wouldn't have gone bust, simple as that."

In a statement, the West Midlands Pension Fund said: "The fund's funding strategy is set in consultation with its employers and based on the professional advice received from its appointed actuary, risk and covenant advisers.

"The Fund's investment strategy is driven by its investment beliefs, cashflow and return requirements balanced against risk.

"The fund's benchmark is predicated upon the appropriate balance between generating a satisfactory long-term return on investments, whilst taking account of market volatility and risk and the nature of the fund's liabilities."

The academics said other councils around the country have had to put in less money into their pension funds and also paid a lot less in management fees.

Mr Bailey said: "Over the last ten years, the West Midlands Pension Fund has paid out £1,000,000,000 in management fees, mainly to investment fund managers.

"Now in other pension funds, that was a much, much lower figure. If you look at the West Yorkshire Pension Fund, for example, which was run by Bradford, the scale of fees was probably about 10%"

Mr Clancy said: "Over the last ten years, Leeds have paid 15% of their employees salaries to their pension fund. Birmingham has paid 30%. That's the difference. Now, they should have asked those kind of questions. But what happened was the bill arrived and they paid it."

The West Midlands Pension Fund told ITV News that over the last decade it has compared itself to pension funds of a comparable size and nature and said the fees are very similar.

ITV News Central also contacted Birmingham City Council, who said officers are taking some time to look through and digest the academic report.

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