Saturday, October 08, 2011

The cost of Option One to members of the LGPS

Whilst the pensions dispute is indeed about a lot more than "contribution increases" (which are in reality a tax on public servants saving for retirement), yesterday's publication of the Government's two options for the immediate future of the Local Government Pension Scheme (LGPS) does enable us to see the scale of that aspect of the attack upon our pensions.

These are the contribution increases under Option One (before tax) to save £450 Million annually by 2014/15;

These are the changes to the accrual rate under Option One;

The balance of £450m in this case would be achieved a by a stepped change in the scheme’s accrual rate from the current rate of 1/60ths to 1/64ths with effect from April 2013 and to 1/65ths with effect from April 2014.

This means that for future service from 2014 onwards each year of service would be worth 1.54% of final salary on retirement as opposed to 1.67% as at present.

This reduces the value of future service for pensions purposes by 7.8% (that means that for a given amount of service and a given final salary, your pension – in respect of future service – will be 7.8% lower than it would otherwise have been.)

An employee at the top of Scale 6 in Inner London would, by 2014, be paying 27.7% more to earn 7.8% less pension than at present in respect of future service (representing about one third (33%) less “value for money”).

In the next post, I will look at Option Two in the same way.

No comments: