Coalition consults on local government pensions

The government has published a formal consultation on short-term changes to the Local Government Pension Scheme (‘LGPS’) from 1 April 2012 in an attempt to save £900m by 2014-15.

From April 2015, the government intends to introduce wholesale changes to the LGPS, which it claims will be in line with the recommendations made by the Independent Public Service Pensions Commission’s report published in March 2011 (the Hutton review).

Lord Hutton identified three reasons why changes were needed to the LGPS:

• people are living much longer than previous generations
• as people are living longer in retirement, the cost of providing pensions is increasing
• taxpayers can’t be expected to bear all the cost of increased longevity

The Treasury’s original proposal for short-term changes have been amended. Instead of achieving the whole of the savings target by increasing employee contribution rates, DCLG is suggesting realising half (or, optionally, a third) of the savings through a smaller average increase in contributions. The remaining savings would come from a change to the accrual rate from April 2013, producing smaller benefits when staff retire.

Under the government's proposals, lower paid workers would face no increase in contributions, whereas higher paid workers could be required to pay up to an additional 5 per cent of their salary towards their pension (before tax relief).

The Local Government Group has produced an alternative proposal, included in the consultation document, that consists of an increase to the normal pension age to 66, and a member choice of an increased contribution rate or a change in the scheme’s accrual rate. 

Local Government Minister Bob Neill said:

"Today's pension proposals set out a way to save £900 million over the next three years that protects low earners from excessive increases - those who earn less will be asked to pay in less than high earners in the Scheme.

"We will continue to engage with local government and trade unions throughout the consultation as they have a key role to play. We hope all parties will take the time to consider these proposals in a constructive manner."

However, Brian Strutton of the GMB trade union described the local government proposals as a "shabby piece of work" that would lead to thousands of staff opting out. He told the BBC:

"In the face of this onslaught, workers will leave the scheme and put its funding at risk.

"Although there may be scope for negotiations to continue, the Communities Secretary Eric Pickles has given no cause for GMB to call off our industrial action ballot, which is planned to start on 31 October."