The new look LGPS - pay more for less?

Proposals to amend the pensions of local government workers are out for consultation.

UNISON has helpfully produced a guide to the proposals for the “new look” Local Government Pension Scheme (LGPS). It is being circulated to branches. The latest information online is still Campaign Bulletin 49 – but check the pensions pages and I imagine the full guide will be there soon.

It is a 28 page document which repays careful reading and includes some helpful worked examples comparing the old and new schemes for a number of case studies with different ages and lengths of service. There are clearly some better features of the new scheme, including accrual of pensions at the rate of 1/60th per year of service which, if a pensioner uses their commutation rights to achieve the same lump sum to which they would have been entitled on the old basis, delivers a pension worth 8.3% more than in the old scheme in respect of future service.

As far as I can see the document does not do enough to flag up the fact that we are of course being asked to pay more for this improved value. The average pension contribution in the new scheme will be 6.3% rather than 5.8% as at present (which is an increase of 8.6%) (i.e. 0.5% is 8.6% of 5.8%). Therefore the increased value of the scheme in respect of future service is being more than paid for by an increase in the average rate of employee contributions. I would be interested to know if other UNISON activists have come to the same conclusion on this point?

What’s more the trade union side have conceded future reviews of the costs of the scheme, albeit the review mechanism will also consider age reduction factors and lump sum commutation calculations. This is a concession to the employer’s desire to hold their contributions steady and increase our contributions if increases in longevity push up the costs of the scheme. However the scheme includes a built in upward drift in average employee contributions if the point at which the marginal contribution rate rises from 5.5% to 7.5% remains at £12,000 as wages and salaries rise over time.

Of course the big problem is the refusal of the Government to move further on protection. As the UNISON guide shows, many current staff who are too young to benefit from the transitional protection which has been offered, and who would qualify to retire at 60 with no reduction in their pension under the “Rule of 85” will lose out if they retire early, even though the unions have secured reductions in the amounts by which pensions are reduced for early retirement.

A comment on this blog suggested that rather than seek protection we should be arguing to revalue the past service of existing scheme members on the new basis. It’s a nice idea, but since it would mean persuading the employers to value our past service as being worth 8.3% more than it is at the moment I am not sure whether it is a runner. Perhaps someone reading this knows different?

The trade union side have secured some useful concessions on ill health retirement so that if anyone retiring in future would have been better off under the previous Regulations then those more favourable provisions can still be applied. It would be interesting to know if anyone has asked for realistic costings of the implications of offering a similar choice to LGPS members currently covered by the “Rule of 85”?

Finally (for the moment – I have only skimmed the document) we face a serious problem in relation to early access to pension benefits for those made redundant. Not only is the minimum age for payment of the pension going up from 50 to 55 (which is seen as almost inevitable although I don’t know why because it is only the consequence of an Act of Parliament) but the employers will have discretion to apply age reductions because of early payment of the pension in these circumstances.

This aspect of the proposals appears not to have been discussed with the trade union side and is, as the UNISON guide rightly says, clearly unacceptable. It would represent a massive change in the position of many longer serving local government workers every bit as significant as the assault on the “Rule of 85”.

I hope it is just the old cynic in me who is reading into the presentation of the document a desire to “look on the bright side” a little too often…

I look forward to hearing a report from tomorrow's meeting of the UNISON Local Government Service Group Executive.