(June 1, 2012) — Pension experts and organisations have welcomed the new deal for pension funds run by local government entities across the England and Wales.
The newly reformed Local Government Pension Scheme (LGPS), announced yesterday, sets out how the 89 bodies in England and Wales will have to run their retirement systems. The new scheme was agreed between employers and unions and will come into effect on April 1 2014, affecting around 1.6 million members.
Graeme Muir, Partner and Head of Public Sector Practice at Barnett Waddingham, said: “It’s taken longer than expected but I think the wait has been worthwhile. The approach adopted by the LGPS stakeholders of getting round the table and thrashing out a deal means that the LGPS is the only scheme so far to have agreed a new Hutton style arrangement.”
Lord Hutton, a former Labour party MP, prepared a report on pensions in the public sector – including other sections such as the National Health Service, teachers and the civil service – and made recommendations for reform. These pensions have become increasingly expensive to maintain and represent a disparity against what is available for workers in the private sector.
Muir said: “The key parameters of the new scheme tick all Lord Hutton’s boxes and cleverly provide an option that allows those who feel they cannot afford to be members of the current scheme the opportunity to save something for retirement. Our congratulations go to all those involved in the process.”
Sir Merrick Cockell, Local Government Authority (LGA) Chairman, said: “”The LGA’s objective in this process has been to ensure that the LGPS continues to be sustainable into the future by developing a set of proposals that are affordable for employers and council taxpayers while being fair to members.”
The main points of the new scheme can be found on the LGPS website here and include changes to accrual rates, flexible options for contributing to (and therefore only taking) half of the full pension, and using the national state pension age rather than an arbitrary age as is currently the case.
The National Association of Pension Funds (NAPF), the organisation representing the majority of local government as well as corporate schemes, also welcomed the announcement.
Darren Philip, NAPF Policy Director, said: “This deal will allow employers and unions to finally start communicating with scheme members about the changes to their pension, reassuring them that the LGPS will remain a good quality pension scheme.”
However, Philip warned: “The clock is ticking as the new rules are set to take effect in 2014. So it is crucial that the consultation moves forward swiftly, and that further work around cost management and scheme governance is carried out.”
Some 75% of local government employees participate in the LGPS, according to official figures, which is significantly higher than the average 34% participation rate in private sector schemes but well below the public sector average of 85%.
Philip said: “In reforming public sector pensions we need to avoid a race to the bottom. The LGPS scheme needs to be sustainable and affordable in the long-term and we need to ensure that these proposals will be a lasting settlement.”