Return to Agenda

ITEM PF16

PENSION FUND COMMITTEE – 15 NOVEMBER 2002

CONSULTATION ON THE ‘STOCKTAKE’ OF THE LOCAL GOVERNMENT PENSION SCHEME.

Report by Director for Business Support & County Treasurer

Introduction

  1. The Office of the Deputy Prime Minister (ODPM) is carrying out a ‘stocktake’ of the pension provisions for employees eligible to join the Local Government Pension Scheme (LGPS). Pension provisions for teachers and fire fighters are not included in this exercise. A discussion paper has been issued following fact-finding exercises and this had been lodged in the Members Resource Centre. This paper states that current arrangements for existing staff will not be affected but that it is time for the debate for future arrangements to be started. This report provides a summary of the discussion paper. Views of interested parties are sought no later than 14 February 2003.

  2. Questions referring to this consultation may be presented at the Pension Forum.

    3. The Discussion Paper

  3. The paper explains the current arrangements within the statutory and historical framework. It points out that the basic strength of the scheme was that pension provision was based on a stable local government employment record for men working full time with career progression until retirement at 65. This pattern of employment is becoming less familiar. A majority of the workforce are now female, part time employees, often holding multiple employments and often with career breaks. Add to this the increasing evidence of services being externalised and the current pension provision can be seen as inflexible and unable to cope with current and future arrangements for a changing local authority environment.

  4. These changes in working practices come at a time when returns from the pension fund investments are falling, people are living longer and fewer people are making adequate provision for retirement.

  5. The paper provides lists of perceived advantages and disadvantages gathered during this stocktake procedure, and taking these points, moves to lay down some key principles which the LGPS perhaps ought to provide, but keeping within the regulatory and policy framework:-

    • "Comprehensive in their provision

    • Flexible and responsive to needs of employees and employers

    • Equitable to members, employers and taxpayers in terms of balance between provision and cost

    • Fully transferable

    • Efficient and cost effective in their delivery

    • Able to achieve long term statutory based pension promise."

  1. Considering these aims of the exercise, interested parties are asked to discuss, argue for and against the questions posed by the paper e.g:

    • If a higher contribution rate is levied from employees should an improved benefit package be available, and should this be universal?

    • Should an improved set of employer based discretionary benefits be offered?

    • Should the benefit structure be changed for ill health retirements?

    • Would it be practical to introduce more flexibility in employee contribution rates eg by individuals or groups, by location or by time period on a cafeteria style of provision?

    • Would it be sensible to introduce salary-averaging arrangements?

    • Should a solution be sought to overcome difficulties posed by the earnings cap?

    • Should employers be able to offer a stepped pension plan linked to salary and career progression - varying contributions or type of scheme according to salary or career progression?

Considerations

  1. One advantage the LGPS has over other public sector schemes is that there are pension funds to help defray costs. In the past, high returns on investments have helped to keep employer contributions low, but this trend has now been reversed. This reduced return coincides with increased liabilities through longer life spans.

  2. Employers are now picking up the costs of previous liberal early retirement practices, unstructured ill health arrangements and changes to pension funding imposed by central government.

  3. Increasing council tax to support employees’ pensions places authorities and elected members in a difficult position even when the provision of a final salary guaranteed benefit scheme is an important element in the recruitment and retention package. This is making future planning and budgeting difficult to predict for the long term.

  4. Many people do not join the LGPS because they are unsure of their long term employment and because they consider their earnings too low. There is little incentive to join a tax efficient scheme when earnings are below the tax threshold.

  5. The discussion paper suggests that the scheme is not attractive because it is not flexible. However increasing flexibility within a similar structure as present will require more administration to improve scheme awareness amongst scheme members and employers.

  6. Salary averaging for benefit calculations could enable employees to move between employments, change hours and maybe include overtime payments, which could all be reflected in the final benefit. This may result in a change of culture from retirement occurring at the peak of earnings to enabling a more flexible retirement policy and a skill sharing and winding down to retirement.

    7. RECOMMENDATIONS

  7. The Committee is asked to consider what response, if any, they wish to make to the ODPM’s discussion paper.

CHRIS GRAY
Director for Business Support & County Treasurer.

Background papers: Copy of discussion document in Members’ Resource Centre: www.odpm.gov.uk. Click on "news" and scroll to 9 September 2002.

Contact Officer: Jenny Wylie Tel 01865 815530.

October 2002

Return to TOP