Local Government Pension Scheme: WLGA and JCW opposed to proposed rises in employee contributions
08 June 2011
The Welsh Local Government Association and the Joint Council Wales (JCW) have both agreed a statement in defence of the Local Government Pension Scheme (LGPS) and in opposition to the Chancellor of the Exchequer’s proposals for substantial rises in employee contributions to be phased in from April 2012.
Cllr Gordon Kemp, (Vale of Glamorgan), WLGA Employment Spokesperson and Chair of the JCW Employers side said:
“Local government officials and trades unionists alike are concerned that the unique position of the LGPS has been completely ignored in the debate surrounding the cost of public sector pensions. The LGPS is actually a funded scheme, which means it is supported in its entirety by employee and employer contributions – the Treasury is not required to fund any shortfall as it does in a number of other public sector schemes. Therefore, there would be no "saving" to the Treasury as a result of increasing employee contributions. .
WLGA and JCW Members are concerned that the proposed increases will lead to opt-outs from the scheme - far greater than the 1% envisaged by the Government, thus threatening the financial viability of individual local government schemes across the country, which is in complete contrast to the Government’s stated objectives. On behalf of both bodies I have written to the Chancellor of the Exchequer, the Secretary of State for Communities and Local Government and the Chief Secretary to the Treasury to press the case against the proposed increases.”
Dominic MacAskill, speaking on behalf for the Local Government trade unions added:
“The Westminster government’s assertion that public sector pensions are gold plated and need reforming is a myth, as the average local government pension on retirement is only £4,200 for men and £2,870 for women.”
“Another myth is that these pensions are not affordable, the Local Government Pension Scheme has a total of over £150 billion in investments with income from investments and contributions exceeding pension payments by £4-5 billion every year.”
“However, if the government has its own way then a predominately low-paid workforce will face a 50% increase in their pension contributions for a 50% reduction in benefit and a retirement age of 67 years rising to 68 years. The trade unions conducted a survey that demonstrated that if these contribution rises were implemented then between 39% and 53% of members would opt–out of the scheme, depending on how the increases were distributed amongst different salary bands, this would create a funding crisis where one didn’t exist before.”
“That is why I am pleased that the Welsh Local Government employers have joined with the trade unions in arguing against these destructive changes and stating in no uncertain terms, if it ain’t broke, don’t fix it!”
Notes to Editor
Background
• The Welsh Local Government Association, (WLGA) represents the interests of the 22 local authorities in Wales (the 4 police authorities, 3 fire and rescue authorities and 3 national park authorities are associate members). The WLGA’s primary purposes are to promote better local government and its reputation and to support authorities in the development of policies and priorities which will improve public services and democracy.
• The function of the Joint Council is to provide an all Wales forum for Local Authority Employers and Trades Unions to meet for the purpose of:-
1) Identifying issues of key importance to local government in its employment function
2) Sharing examples of best practice in employment arrangements between Authorities and Trades Unions
3) Seeking consensus where possible on best practice / an all Wales position on issues, and formulating guidance and advice to Authorities and Trades Unions
4) Learning about changes and new developments through external speakers / experts
5) Enabling the joint voice of local government and its Trades Union representatives to be expressed and heard by:-
a) The National Assembly for Wales
b) The WLGA
c) National Trades Unions
d) The Local Government Employers / the Local Government Group
Detailed Reasons for Opposing the Increases
• Schemes are assessed every three years by a specialist pensions' actuary. Actuaries take a long-term view on sustainability of schemes and recommend incremental changes to employer bodies to ensure that each individual scheme remains financially robust.
• Recent measures adopted across LGPS schemes have addressed the financial challenges of issues such as increased life expectancy and low investment returns. These measures have included tiered increases to employee contribution rates, far greater restrictions on early retirement, and other changes to reduce the cost of employee benefits. CPI has replaced RPI as the measure used to inflate future pension benefits in the future, and this will further improve the financial position of schemes (although it may also cause significant pension benefit reductions for LGPS members, the majority of whom draw a very modest pension of, on average £4,000 per year). These changes have served to ensure that the LGPS remains viable and the way these schemes work means that there is no external funding pressure on the Treasury. Further fundamental changes are in the pipeline following the Hutton Review.
• The long-term viability of the LGPS is predicated upon a relatively stable contributory membership and an influx of new members. It is clear that current contribution, indexation and pension benefit conditions for active scheme members are helping to erode notional pension deficits incurred though past membership of both current and retired members. This is being achieved through gradual increases in the proportion of contributions relative to benefits implemented in recent years and planned through existing measures for future years.
• An increase in opt-out rates above historical trends has been witnessed in 2010 and the impact of salary freezes and high inflation are likely to increase financial pressure on individuals in the local government sector. In addition, further reductions in scheme membership are anticipated in the coming years as a result of large numbers of employees leaving local government employment following SR2010 and the Local Government Finance Settlement. A further precipitous increase in employee contributions runs a very high risk of causing a significant acceleration in this trend and causing an unsustainable disequilibrium in the balance between the numbers of current and deferred or retired scheme members.
• Moves to interfere with a prudent and robust pension scheme environment through a blanket increase in employee contributions appears to be in direct conflict with the Government's Localism agenda. The LGPS is one area where local government has demonstrated a long history of prudent, self-regulated financial management and this would seem to be an odd area in which Government should feel the need to intervene.