UK – London’s Metropolitan Police Authority has been forced to set up a pension reserve to tackle forecast pension budget annual increases of six to seven percent.

An independent report debated by the authority’s finance committee yesterday highlighted the continuing growth in costs of future police pensions, with accelerated increases from around 2005/6 and again from 2009/2010. The increases reflect a peak in recruitment 30 years ago.

The cash increase over the period up to 2012/13 is 266 million pounds (375 million euros), an average annual increase of seven percent. Metropolitan Police pensions already cost around 250 million a year (353 million euros) – about 10% of the annual budget.

“We have no guarantee that government grants will be increased adequately to pay for these costs. This means that there could be a substantial hike in the council tax. This, we believe, would be unfair on the citizens of London,” said Graham Tope, chairman of the finance committee.

“A pension reserve would help to smooth the annual impact and the finance committee has today agreed to begin to set aside sums for this purpose. It is clear that the authority has to act now as there are only three years to secure such a reserve before the first peak year of 2005/6,” he added.

The independent report is being given to the Greater London Authority to inform the Mayor’s forward budget planning, and to the UK government Home Office – both entities fund the two billion annual budget for the Metropolitan Police.

The London Metropolitan Police accounts for around 20% of all police officers in England and Wales, but according to newspaper reports the entire police force is facing pensions shortfalls of up to 2.5 billion pounds (3.5 billion euros) over the next decade. The government established a police reform campaign in November last year, which, among other issues, will look at ways to tackle the pensions issue.

Says the reform paper: “The government is considering options for modernising police pensions to make them more flexible and affordable for future entrants. While the focus of this reform will be on the most appropriate structure of benefits for police officers, we will also seek to meet the needs of police authorities and chief officers for a scheme which brings greater certainty about the financial impact on individual police forces.”