Your recent article headlined ‘Debt confused with pension liabilities’, included a statement by a South Hams District Council spokesman regarding the council’s final salary-related pension scheme, that “both the employee and the employer pay contributions into the pension fund on an annual basis to pay for the cost of future pensions. These annual payments finance the pension liability. Debt is being confused with liability”.

Given the fact the council’s pension fund, which is is a defined benefit scheme, is currently in deficit to the tune of £56m, the statement is misleading and therefore requires further explanation.

With this type of pension scheme, while the employee’s contributions are fixed, the employer is responsible for contributing the balance of money necessary to pay for the pensions when they become due, regardless of the total cost.

Pension funds are invested in the stock market and, since 2000, there has been world stock market uncertainty.

UK stock market crashes in 2001 and 2008; low interest rates; quantitive easing; and Brexit etc are all factors which have made it extremely easy to lose money and very hard to make it.

As a result, 97 per cent of British-based companies are now either operating defined contribution pension schemes, where both employer and employee contributions are fixed.

Normally when salary-related pension funds go into deficit, corrective action is taken either by the employer increasing its contributions, or alternatively the trustees cutting benefits, increasing employee contributions or even closing schemes for future accrual.

However Devon County Council, Torbay Council, and South Hams District Council have done nothing and, as a result, their employee pension schemes are currently in deficit to the tune of £945m, £300m and £56m respectively; a position which is totally unsustainable as it is only the council tax payers who have been placed at risk, because they will automatically end up footing the bill for the shortfall in funds.

Undoubtedly huge pressure must now be put on the councils to make their employee pension schemes both controllable and affordable, by switching to defined contribution arrangements as soon as possible.

Ross Newton

Ashprington