Fund Mergers - the Silver Bullet in LGPS Negotiations?

Local government pension schemes will be free to reform the fund without imposing a 3.2 percentage point increase on employees' contributions, the government has announced. The LGPS has been granted autonomy to formulate its own package of reforms while still helping deliver additional 'savings' of £3.8bn required for all schemes across the public sector by the Treasury:  http://www.professionalpensions.com/professional-pensions/news/2095677/lgps-freed-contribution-increase-rule#ixzz1Skjq5TeG

The Trades Union Congress - led by UNISON GS Dave Prentis - has asked Treasury chief secretary Danny Alexander MP to make sustainability the key principle under which the proposed reforms are judged instead of just delivering the savings.

This opens the way to demand the merging of the LGPS funds, this is a much more sensible way of gaining income than imposing costs on scheme members. UNISON submitted a report produced by experts that showed by merging the 101 funds in the UK to 14 income grew by £1.2bn in the first year and thereafter.

So one year of fund mergers delivers the money the government is looking for. Any additional money out of that could go towards improving benefits.

This is a major change for the government bought about by the sustained pressure of evidence produced by UNISON during the negotiations. It was clear that any significant increase in scheme member contributions would have led to many leaving the scheme.

This would have had the effect of leaving all the costs of paying pensions on the employers. UNISON provided evidence that if 50% of members left it would have sent the funds into a spiral of decline.

Talks will now take place between unions and the Local Government Group along with input from the Department for Communities and Local Government and LGPS fund chiefs to write a plan to take to Treasury.

The TUC also contests the timescale of the reforms.

It said Treasury plans to consult on the package of proposals and implement them by 1 April 2012 would impinge on making the reforms sustainable.

It follows a ministerial statement yesterday from Alexander laying out the process for reforming the seven public sector pension schemes to generate an additional £1.8bn worth of savings by 2015.

It confirmed the funded status of LGPS meant the Treasury was considering "alternative ways" to deliver some of the savings. The Treasury is seeking to gain £1.2bn in savings from the reforms in 2012/13.

Clearly then fund mergers will deliver that saving without imposing costs on scheme members or further reductions in pensions for retired members.