The FT reports on proposals from the influential London Pension Fund Authority (LPFA) for ‘sweeping changes to local government workers’ pension arrangements’.
http://www.ft.com/cms/s/0/1534025a-b465-11df-8208-00144feabdc0.html?ftcamp=rss
Based on the its submission to the Con Dem Government’s Hutton Commission, LPFA is outlining several supposed “quick wins” that the government could undertake to ease funding pressures on local authorities.
They all amount to one thing - scheme members bearing the brunt of the economic crisis. There is no attempt to look at other structural issues within the LGPS such as the declining investment returns, dramatic increases in fund management costs and the poor performance of the large number of small investment funds.
The recommendations made by the LPFA amount to the following, increases in contributions, increases in retirement age and cuts to benefits. These are set out below, we doubt the scheme members in the LPFA have had a chance to comment or endorse what the LPFA board is recommending, but there again there are no scheme members on the LPFA board.
First, cut the long-term liabilities of pension schemes, by announcing in September changes to the scheme effective from next April which actuaries can then take into account when determining the results of the current valuation. The lower the liabilities, the less the pressure to increase total contributions. The aim would be to keep total contributions at no more than current levels, and if possible, lower. Cuts in liabilities can be achieved through a cocktail of the following measures:
Application of CPI indexation to LGPS pensions in payment and deferred pensions – easy to put in place via the Pensions Increase order and can be taken into account this valuation. Comment: This is already planned and will cut pensions by reducing the rate of inflation that benefits were due to rise by each year.
Increase in retirement age to 66 from 2016 in line with planned increases to State Retirement Ages retirement. Comment: LGPS members will need to work until 66 this reduces costs for the employer as pensions are paid out later.
Adjustment of future accrual rates – say move to 65ths rather than 60ths. Comment: This is cutting benefits by reducing the amount of the salary that has to be paid out when you retire.
Cap on pensionable pay – limit to £75,000 or £100,000 – may be good politics and appease the unions but won’t save much money. Comment: As suggested not much money to be saved by this recommendation.
Immediately increase employee contributions and/or pare down tax breaks to reduce employer (taxpayer) contributions. Any increase in employee contributions should be skewed to protect low earners who might otherwise choose to opt out of the scheme. Comment: Straight forward increase in member contributions and a reduction in current living standards.
The net result of implementing these proposals should be a reduction in employer contribution rates flowing from the results of the 2010 valuation and therefore an immediate effect in terms of local authority spending requirements for 2011/12 budgets and future years. Comment: This is clearly a budget reduction exercise in line with the Con Dem austerity programme and nothing to do with making the scheme more secure and viable for the members.
