NEWPORT’S municipal bus company has a deficit of £4.7 million to a local government pension scheme, a council document has revealed.

Newport Transport – an company owned by the authority but run on an arms length commercial basis – cannot increase its contributions to the scheme given current challenging trading conditions, according to the report to senior councillors in cabinet.

The pension fund has agreed to allow the firm to defer the increase for about two to three years but the company needs a formal guarantee from the council to underwrite future contributions.

If the agreement isn’t made the bus company’s viability could be put at risk, or it could default on its pension payments obligations.

In both cases the council would have to deal with the financial consequences anyway.

As well as the redevelopment of the bus station, Newport Transport has been faced with cuts to the Welsh Government support including the money they receive for free concessionary bus passes.

It’s hoped the move – which would need to be approved by cabinet on Thursday – will give the bus firm some time and flexibility to deal with the matter independently of the council.

The deficit concerns the firm’s position within the Greater Gwent (Torfaen) Pension Fund – which employees had been members of when the company became an independent arms length company in 1986. New employees were offered alternative arrangements.

At the time of the last valuation in March 2013, there were 18 members from the firm with the fund.

The company’s deficit within the fund, according to the document, was calculated as being at £4.7 million - however this is expected to change with the fund revalued every three years.

“What is clear is that contributions have to increase significantly in the future and the bus company will need to fund this increase,” the document said.

It is proposed that, from this month, the firm’s contribution will rise from around £200,000 a year to nearly £800,000.

“A key factor in this increase is the fact that no new employees from the bus company are allowed to join the scheme... it is only now that this was reflected in the valuation,” the document reads.

It adds that “given current challenging trading conditions” the bus company cannot increase the employer’s contribution. The company agreed with the fund’s administrations to increase contributions in two to three years time.

The guarantee does not put the council at any greater financial risk, according to the document.

Scott Pearson, managing director of Newport Transport, said: "Newport Transport is working with its shareholder Newport City Council and Greater Gwent (Torfaen) Pension Scheme to ensure the company can continue to meet its pension liabilities.”

Cabinet will make its decision on the matter when it meets on Thursday.