By Professor John Clancy and Professor David Bailey
24th December 2025

Pension Fund Nightmare Before Christmas
£1.9 Billion wake-up call for Birmingham.
Chief Commissioner McArdle must act. Now.

On the 10th of December 2025 the biggest news to impact on Birmingham City Council for decades happened.

The West Midlands Pension Fund reported to a committee of Wolverhampton City Council that it had been miscalculating the most important figure in its accounts and valuations for the last decade.

What should have been 600 was reported instead as 430. Of which more later.

They didn't put it like that, obviously. But that's actually what they did say on p207 (with last time added by us)..

That 170 difference literally meant they got their financial sums very wrong indeed, by at least £8billion!

As a result, Birmingham is about to announce the biggest funding surplus in history (so far) for a UK Council pension fund :

£1.9 Billion.

This dwarfs equal pay. And the Oracle computer disaster is just a minnow compared to this veritable spurting blue whale of a catastrophic local government mistake.

When the media eventually catches up it should eclipse them in terms of front page national news.

It led to Birmingham City Council being required to hand over 100s of £millions to the fund over the last six years, which it simply need not have done.

And Birmingham stupidly did so, without challenge or question, as lemmings over a cliff.

And taking 100s of £millions-worth of its services over the cliff, too.

The funding surplus at the West Midlands Pension Fund is going to come in at around

£8.3 billion.

The figures in that report to the committee on the 10th of December make it inevitable.

It’s got £8.3 Billion MORE in its account than all the pensions it will ever have to pay out to the current employees and current pensioners.

The assets- and liability- shares that Birmingham City Council has in that fund means, on a conservative estimate, Birmingham’s share of the surplus is 23%. Hence the £1.9 billion.

And even this colossal, historic figure will have been cut by sleights-of-hand and smoke-and-mirrors concealment.

Due to the aforesaid woeful miscalculations, only four years ago they said the fund was in deficit and didn’t have enough in the bank to pay out future pensions.

Turned out they were wrong. And they were wrong big.

As we've said, the fundamental miscalculation figure was 430 - when it should have been 600.

The figure is called the ‘expected rate of return on investments’. They sometimes call it the discount rate to confuse you.

All pension funds have to look 20-30 years ahead and work out what the fund is likely to be worth based on current investing. They then set that against what they’re likely going to pay in pensions.

They are specifically required under the regulations to calculate over the long term, not what’s happened in the short term.

The dunderheads assumed that because their investments took a hit over Covid and the impacts of the Ukraine war, they would never get more than an annual return of 430 basis points (4.3%) over the next 20 odd years.

That miscalculation, and what also turns out to have been a similar, earlier one, 3 years before, led to panicked demands for massive increases in what Birmingham had to pay to close the imaginary gap now and into the future.

Then they got found out.

The government’s own statutorily instituted Local Government Pension Funds’ Scheme Advisory Board (the SAB) had warned them earlier this year that all the real evidence shows that over the last 30 years, and therefore extremely likely over the next 30 years, the obvious actual gross return is 740 basis points (7.4%) across the 87 funds in England and Wales.

Consequently, when they did their sums this year they could not hide.

The problem is that the management expenses for the fund (currently £135 Million a year - and counting) were already taking 59 basis points every year into the future for 20-odd years.

So that took us down on their now increasingly dodgy calculations to a net figure in this current valuation of 641.

They then got it effectively down to 600 by introducing a completely unnecessary ‘prudence’ level of 70% for good luck.

But the SAB has already told you that 700+ is the figure, so introducing ‘prudence’ is (to misquote Gordon Brown) prudence-for-no-purpose.

The delightful Prudence had already done her stuff before they even started. There was no need for her to be invited again for an encore.

And this figure, again, even in their own increasingly desperate calculations, should have been 600+ for the last 10 years, at least.

So, what was the impact of having 430 as the expected rate of return on investment, rather than 600?

The reason we use basis points or BPs (0.1% is 10 BPs, 1% is 100 BPs), for these calculations is the slightest change in this expected rate of return causes massive swings in the surplus or deficit at the fund.

Each change of 10 BPs changes the size of the liabilities by about 2%. (Birmingham uses 1.6% for accounting liabilities in its accounts, which we believe is too low).

So,

a change of 170 BPs changes the liabilities by a whopping 34%.

And when your liabilities start off in 2022 at £20 billion, that means a miscalculation of £7 billion.

And because you’ve also miscalculated where the assets are going to be, you’ve miscalculated by a further £1.3 billion. And this is using Birmingham’s 1.6% sensitivity, rather than the full 2%.

So, we know from its annual report 2025 that the value of the assets at the West Midlands Pension Fund is £21.4 billion.

If the liabilities (all future committed pensions) on a conservative basis, are £13.1 billion, there is a surplus of £8.3 billion.

Birmingham’s share of 23% means a surplus of

£1.9 billion.

The regulations and the fund's own rules say that surplus has to be returned. It’s as simple as that.

Painfully slow-witted officers at Birmingham City Council have finally woken up to the fact that some of this money is going to come back.

They simply don’t have a clue, though, of the sheer scale of what’s going to hit them. Bad for them, because it makes them look incompetent, but good for Birmingham.

For the first time in October 2025 the Cabinet report on the so-called Medium Term Financial Plan acknowledged at 8.9 that pension fund refund money will be coming back into the council.

Embarrassingly and laughably, they have come up with a figure in the report of £14 million back into the accounts each year over the next three years.

Progress - but it’s clear that officers of Birmingham City Council simply do not understand the position.

In particular, the Chief Commissioner, as did his woeful predecessor, has shown himself completely unfit to give financial advice on pensions.

He has failed to point the officers in the direction of the likely size of the surplus refunds about to hit.

And if it was clear £14 million was going to come back every year for at least the next three years, why wasn’t this built last year’s budget? The cuts put into that budget were part of a process of cuts over a number of future years.

If it had, one thing’s clear: the closure of the day centres for the disabled in the city would not have had to have gone ahead.

Now it’s not likely as straightforward as £1.9 billion coming straight back into the revenue account. (We think it should be, by the way).

Any refunds don’t necessarily translate into the core budget of the City Council, because council employees in the LGPS are not all employed in departments or places accounted for in that core budget.

A case in point is that of non-teaching staff in local authority-maintained schools.

Non-core budget employee funding comes, for example, in direct grants or pass-through funding, but we calculate 3/5 are still in the core budget.

Nevertheless, refunds still come back to the Council as a whole. It’s just that the direct impact on reduction in cuts will not be in full. But as much as 80% might.

But to suggest it is £14 million shows sheer ignorance on behalf of the Chief Commissioner and the pretend Leader of the Council.

Birmingham has had a single member of the Wolverhampton City Council Pension fund committee, even though it is by far the biggest employer and contributor.

But she has one vote out of 16, ten of which are Wolverhampton City Councillors. We would assert it is high time for Wolverhampton City Council to be relieved of its duties as the administering authority for the fund.

Mary Locke has been the sole Birmingham City Council member.  We greatly respect the reliable and redoubtable Councillor Locke. But we would assert that she she’s in an impossible position. And legally her fiduciary duty in that role as a member of that committee is actually to the pension fund and its members, not to Birmingham City Council.

Which is why it’s up to the leader of the Council and the Chief Commissioner to do the heavy lifting here to speak up for the people of Birmingham.

We believe the Chief Commissioner has a responsibility to Birmingham City Council and its citizens not simply to accept whatever bill arrives from the West Midlands Pension Fund.

And the current consultation period happening at the moment is the time to do it.

They must challenge the contents of the funding strategy statement and the investment strategy policy while they’re at it. They both need total redrafting.

Especially so with regard to placing a cap on administration and investment management expenses, whose compounding annual drain on the funds' assets is the real threat to pensions.

We suggest no more than 10 BPS overall for all management expenses

Birmingham City Council is the biggest employer by far in the fund and its views have to be significantly taken into account. And that’s the chief commissioner’s job right now.

And Wolverhampton City Council and the West Midlands Pension Fund will undoubtedly be trying their best to keep refunds to an absolute minimum. They need to be brought up sharpish. They’ve already desperately suggested increasing the funding level to 120% to create a surplus buffer.

Mr Mcardle must slap them down, on this and the 59 basis points they are charging for management expenses.

He and the pretend leader have no fiduciary duty to the West Midlands Pension Fund or to Wolverhampton City Council.

His, and his lance corporal leader of the council’s, fiduciary duty is to the citizens of Birmingham, who pay the Chief Commissioner a substantial daily salary. He has to go out and bat for the people of Birmingham.  And he has to take on Wolverhampton City Council, whose pension fund committee royally messed this up in the first place.

And if he doesn’t like what they are suggesting he should seek immediate, independent, challenger advice from appropriate independent, challenger actuaries. And definitely not the ones they’ve been using so far.

We believe Mr Mcardle must assert that for the next three years, Birmingham City Council must be given credit for already having paid their employer contributions.

In that sense it’s not a refund or a holiday. It’s because Birmingham’s already paid.

So any idea that substantially reducing employer contributions into the fund for the next three years harms the fund or its current or future pensions has to be knocked on the head straight away.

This was something the previous financially illiterate Chief Commissioner and pretend leader John Cotton tried on a year ago.

The payments have already been made. The difference must come back.

To repeat Mr. Mcardle must assert that Birmingham should pay no employer contributions for the next three years at least.

Birmingham City Council is currently paying £132M each year in ridiculous, unnecessary employer pension contributions.

With employer contributions at 0% to deal with the surplus (which the law requires the pension fund to return through reduced contributions) that will bring back almost £400 million into Birmingham City Council’s revenues.

It should be clear to everyone now that the only reason Birmingham City Council became so-called bankrupt, was these excessive payments to the West Midlands Pension Fund. It is also as simple as that.

We see no reason why there should not be an immediate clawback in the first year of £200 million and £100 million for each of the two following years.

It ain’t £14 million a year. We can promise you that.

We mentioned independent challenger actuaries earlier. There are only four actuaries firms that do the calculation for all of the 97 local government pension funds in the UK.

It’s a quadopoly. And it has been shown to be fundamentally flawed, giving what we would regard as completely inappropriate advice to clueless officers in councils up and down the country.

Well, other brands are available. And they take a completely different approach.

One of the most respected of these actuaries firms (who we have quoted repeatedly over the course of the last year) is isio.

In the context of mega-surpluses up and down the country’s council pension funds, their advice is crystal clear: no council should really be paying any more than 6% in employer contributions for the next three years. It’s called ‘the  Isio 6%”.

They also assert the advice given by traditional actuaries has created chaos for employers of all kinds in the Local Government Pension Scheme: schools, police and fire services, FE colleges, universities, Housing associations.

It’s created by the use of purposeless so-called ‘prudence’. And that it is an active choice not a requirement.

The 6% can appropriately apply in places where on average employer pension contributions have been between 16% and 20%.

In the case of Birmingham where ill-advised mega-contributions ranged from 27% to 37% over the last 7 years, then the only way to right the wrong, whilst retaining a healthy wealthy fund for pensioners is for contributions to fall to 0% for the next three years, probably 6% for the following three years and then never more than 10%.

So how is your Medium Term Financial Plan looking now, Major General Mr Mcardle? You and your Lance Corporal Cotton need to get it sorted and go to war with Wolverhampton.