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Kensington and Chelsea council will suspend employer pension contributions for a year from April, starting the firing gun on reductions that are expected from 2026 after an improvement in schemes’ abilities to meet payment obligations.
The London local authority pension fund’s investment committee on Tuesday voted to lower its contribution rate from 7.5 per cent now to zero between April 1 2025 and March 31 2026, after members decided that the scheme’s funding level of 207 per cent meant the money would be better spent elsewhere.
The £9mn savings will go towards a fund to support victims and survivors of the 2017 Grenfell Tower fire in the London borough. Employee contributions are unaffected by the vote.
Quentin Marshall, chair of the £2bn pension fund, which has outperformed its peers over the past decade, said: “This is money that is so clearly superfluous to our need to pay pensions that when faced with either having to find resources from elsewhere or doing this, in our judgment this is a better option.”
The move comes as cash-strapped town halls across England and Wales are expected to cut the amount they pay towards staff pensions after a big improvement in funding levels, driven by a rise in corporate and government borrowing costs.
Changes to contribution levels are due to take effect from April 2026.
Kensington and Chelsea’s decision to cut rates sooner comes despite the fund’s actuaries, Hymans Robertson, saying before the vote that it would be “inappropriate” to lower contributions before the end of the current three-year rate cycle next spring.
Hymans also cautioned that the decision may lead to expectations that a zero contribution rate could be sustainable in the long term.
Marshall said the decision to cut employer contributions to zero from April 2025 was “definitely happening”, barring any challenge from the government or the Pensions Regulator.
It was “absolutely not the case” that cutting the rate to zero for a year from April 2025 would set expectations that it would remain at that level in future “and we are very clear about that”, he added. “We will look at these every year but there’s no precedent at all that it sets.”
Kensington and Chelsea, which provides services to both the wealthiest parts of the UK and neighbourhoods with significant deprivation, is the only town hall pension fund with a funding level of over 200 per cent.
It has the lowest employer contribution rate of England and Wales’s 86 local authority pension funds, and has delivered the best performance of any UK local authority fund over the past decade, at 10.8 per cent, according to shareholder advisory Pirc.
Seventy-two people died in the 2017 Grenfell Tower fire, the worst fire disaster in the UK since the second world war, when flames tore up the external walls of the recently refurbished high-rise apartment block.
A public inquiry last year criticised Kensington and Chelsea for having shown “persistent indifference to fire safety, particularly the safety of vulnerable people”.
Marshall, former chair of the council’s housing and property scrutiny committee, said the savings would be paid into the local authority’s Grenfell Reserve fund.
It has been used for the settlement with the victims of the fire and their families and any future contingencies that might need to be paid in relation to the tragedy.
The £391bn Local Government Pension Scheme, which covers pensions for more than 6mn workers across England and Wales, had a funding level of 107 per cent at its latest valuation in 2022. But this figure is expected to rise at its next triennial valuation in March this year.
The average employer contribution rate among LPGS funds is 21 per cent of staff salaries.
Kensington and Chelsea’s decision comes after Prime Minister Sir Keir Starmer last month vowed to unlock some of the £160bn of surplus held in corporate defined-benefit pension schemes in a bid to boost economic growth.
