GMB Fear Government Will Kill LGPS
Monday 21st February
2011
GMB SAYS GOVERNMENT
PLAN TO SHIFT
COST OF LOCAL COUNCIL PENSION SCHEME TO
EMPLOYEES WILL KILL ONE OF THE
BEST SAVING SCHEMES IN THE WORLD
GMB survey shows that up to
40% of local government workers will refuse to pay the additional
3% contribution and leave the scheme which will leave everybody
worse off
GMB responded to the weekend news that
the Tory leadership of the Local Government Association (LGA) has
written to the Chancellor warning that plans to raise Local
Government pension contributions by 3% will drive people out of the
scheme.
Last month GMB issued a press release
which showed that the additional 3% would raise £900 million which
would be paid to the Treasury and not to the scheme. (This £900
million was for England, Wales. When Scotland is included the
figures to be raised for the Treasury is £1 billion). The press
releases also showed that nearly 40% of scheme members would leave
the scheme if a 3% contribution increase is imposed at a time of
pay freezes and high inflation. See Notes to Editors for a copy
of that press release. GMB has already pointed out that the
Local Government Pension Scheme (LGPS) is already becoming more
affordable to taxpayers and these improvements should not be put at
risk by bad policy.
GMB National Secretary Brian Strutton
said, "This Government's plan to shift the cost of the
Local Councils pension scheme will kill one of the best savings
schemes in the world. GMB's survey shows that up to 40% of local
government workers will refuse to pay this additional tax and leave
the scheme. That will leave everybody worse off.
The LGA has now highlighted
GMB's evidence that simply hiking pension contributions in the LGPS
is counter productive as people will just stop saving for
retirement leaving the taxpayer with a larger bill. Actually
Treasury was already aware of this and had begun discussions with
unions and others about the dangerous consequences of excessively
increasing member contributions and those discussions are
ongoing.
The 3% increase in employee
contributions will not lead be any increase in the funding in to
the LGPS. This increase in contributions from local
government workers will replace the contributions from the
employers. The Treasury will be better off to the tune of £1
billion while the pension scheme will be no better off and local
government workers will be worse off from paying the additional
3%.
There is another way to
achieve £1 billion saving without killing the scheme. In recent
years the cost to the taxpayer has been falling with members
contributing more and benefits costing less. This process
would lead to the £1bn saving the Treasury seek by 2014-5 but only
if the scheme remains an affordable means of saving for local
government employees."
Ends
Contact: Brian
Strutton, National Secretary for Public Services on 07860 606137,
or Naomi Cooke, National Pensions Officer on 07739 919633.
GMB Press Office: Steve Pryle on 07974 251823 or Rose Conroy on
07974 258123
Notes to Editors: This is a copy of the GMB
press release dated 19th January 2011.
GMB CALLS FOR RETHINK OF UNJUSTIFIED £900m STEALTH
TAX ON COUNCIL PENSION SAVERS
Survey shows that £900m
pension tax will drive paying members out of the Local Government
Pension Scheme and undermine its viability for 5m
people.
GMB warns that if the government
goes ahead with plans to impose a minimum 3% tax on 1.7m members of
the Local Government Pension Scheme, there will be a mass exodus
from the scheme that could jeopardise the LGPS and increase demands
on council taxpayers. A GMB survey found that nearly 40% of
current LGPS members would leave the scheme if a flat rate 3%
increase was applied taking the average LGPS contribution from the
current 6.4% to 9.4% - an increase in contribution of £600 a year
for a member earning £20,000 a year. Two thirds of the LGPS's
1.7million contributing members earn less than £22,000 a
year. The Chancellor stated that the lowest paid would be
protected, to do so in the LGPS would require other scheme members
to double their contributions.
The £900m generated by the 3% is
not going into the pension scheme. Unlike the other public
sector pension schemes LGPS pensions are not paid out of Treasury
coffers, (the LGPS currently has £150bn of assets to pay the
current and future pensions of around five million people) so the
only way for this contribution hike to contribute to the deficit is
for central government to reduce the grants made to local
government. This makes the contribution increase a tax, just
as if a 3% levy was introduced payable by anyone saving for their
retirement.
If the predicted proportion of
current LGPS members leave the scheme its funding is in serious
danger of collapse. Currently, the LGPS has a cash-flow
surplus of around £4bn and investment strategies designed for a
scheme with a large number of contributing members. With
significantly fewer employee contributors, local authorities and
council taxpayers will have to pay in more money themselves to fund
the pensions already built up, while storing up greater demand for
NHS and council services in the future as more workers become
destined for a retirement into poverty.
Brian Strutton, National Secretary
for Public Services said, "The Government's policy will
take hundreds of thousands of people out of pension saving when
only a week ago it launched a Pensions Bill intended to increase
the number of pension savers. No one can claim that
increasing members' pension contributions by 50% to raise a tax of
£900m is fair. Council workers are already facing pay cuts
and job losses. The LGPS is the lowest cost scheme in the
public sector, the average member's pension is a fraction of those
in other parts of the public sector or comparable private sector
schemes. It is funded like the private sector and generates
£billions of investment in the UK economy. If this is how the
government treats individuals who pay into a pension scheme in
local government, how can anyone in Britain today feel secure in
saving for retirement?"
1. In the
Comprehensive Spending Review on 22nd October the
Chancellor announced that all public sector pensions excluding the
Armed Forces scheme would increase employee contribution rates by
three percentage points. The exact increases for each scheme
are being prepared in time for the Budget on 23rd March
2011.
2. Between
December 2010 and January 2011 GMB conducted an online survey of
members of the LGPS. 2,000 members participated with 39%
indicating they would leave the LGPS if the 3% increase was applied
to all contribution rates evenly and 53% indicating they would
leave if the contributions were increased by the amount needed to
insulate those earning less than £18,900 generating 3% overall (see
illustrative rates below).
3. Current
LGPS contribution rates and potential rates required to generate
the 3% increase set out in the Comprehensive Spending
Review:
|
Full Time Equivalent
Pay
|
Current
Contribution
|
Flat Rate 3%
Increase
|
3% Increase &
Protection for <£18,900
|
|
< £12,600
|
5.5%
|
8.5%
|
5.5%
|
|
£12,601 - £14,700
|
5.8%
|
8.8%
|
5.8%
|
|
£14,701 - £18,900
|
5.9%
|
8.9%
|
5.9%
|
|
£18,901 - £31,500
|
6.5%
|
9.5%
|
12.0%
|
|
£31,501 - £42,000
|
6.8%
|
9.8%
|
12.5%
|
|
£42,001 - £78,700
|
7.2%
|
10.2%
|
13.4%
|
|
> £78,700
|
7.5%
|
10.5%
|
14.0%
|
|
Average
|
6.4%
|
9.4%
|
9.4%
|
Impact of a flat rate 3% increase
in member contributions for Local Government Pension Scheme
members:
|
Earnings
|
Annual Contribution
Increase
|
|
£10,000
|
£300.00
|
|
£12,000
|
£360.00
|
|
£14,000
|
£420.00
|
|
£16,000
|
£480.00
|
|
£18,000
|
£540.00
|
|
£20,000
|
£600.00
|
|
£22,000
|
£660.00
|
|
£25,000
|
£750.00
|
|
£27,000
|
£810.00
|
|
£30,000
|
£900.00
|
|
£33,000
|
£990.00
|
|
£36,000
|
£1,080.00
|
|
£40,000
|
£1,200.00
|
|
£45,000
|
£1,350.00
|
|
£50,000
|
£1,500.00
|
Impact of a 3% increase in member
contributions for Local Government Pension Scheme members if those
earning less than £18,900 are protected:
|
Earnings
|
Annual Contribution
Increase
|
|
£20,000
|
£1,100
|
|
£22,000
|
£1,210
|
|
£25,000
|
£1,375
|
|
£27,000
|
£1,485
|
|
£30,000
|
£1,650
|
|
£33,000
|
£1,881
|
|
£36,000
|
£2,052
|
|
£40,000
|
£2,280
|
|
£45,000
|
£2,790
|
|
£50,000
|
£3,100
|
|
£65,000
|
£4,030
|
|
£75,000
|
£4,650
|
|
£100,000
|
£6,500
|