Shortfall In Local Government Pension Scheme
Thursday 29th July 2010
AUDIT COMMISSION REPORT
CONFIRMS SHORTFALL IN THE LOCAL GOVERNMENT PENSION SCHEME (LGPS) IS
CAUSED BY LAST TORY GOVERNMENT
Today's announcement of an estimated 75% funding level
for the LGPS in England should remind people how these deficits
arose
Responding to the Audit Commission
Report on the Local Government Pensions Scheme (LGPS) GMB welcomed
the confirmation that the shortfall in the scheme relates to past
service and actions of the last Tory Government.
The LGPS has been reformed to manage
future service costs and past service deficits over the long
term. The LGPS is invested heavily in the UK economy and as
such has suffered from falling investment returns in recent years
like almost every other pension scheme in the country.
Reforms are in place to insulate the council taxpayer, who
contributes about 5% of their Council Tax to the LGPS, from future
cost volatility. The deficits are largely due to employer
underfunding in the past and do not indicate an unaffordable
scheme.
Naomi Cooke, GMB's National Pensions
Officer said, "Today's announcement of an estimated
75% funding level for the LGPS in
Englandshould remind people how these deficits arose.
20 years ago the Tory government set 75% as the funding target for
the scheme to allow councils to slash their contributions.
The result was that employees contributed more than employers and a
cash flow deficit of £500m was built up in only two years.
The figures published by the Audit Commission today show that this
money still hasn't been made up.
Cutting the benefits of the
scheme will not solve the deficits of past service. If the
government believes in the sustainability of local government then
it should believe in the sustainability of the LGPS. A
deficit funding period of 40 or more years is perfectly prudent in
the LGPS context and means no reactionary changes are needed in the
short term.
Now cash rich, the LGPS has
enough money put aside to pay all the benefits required for the
next 20 years, in that time the employer cost of the scheme will
come down and if the economy is managed sensibly, investment
returns should improve. The worst thing for the scheme and
the taxpayer who has to pay for pensioner poverty would be an
unnecessary attack on those who are saving for their
retirement."
Ends
Contact: Naomi Cooke, GMB
National Pensions Officer 07739919633; Rose Conroy - GMB
Press Officer 07974251823.
Notes to Editors:
GMB's recommendations to the Independent Public Sector Pension
Commission are as follows:
General
Recommendations
· A scheme
specific approach to any changes or reform
· Give
recently introduced cost sharing mechanisms time to operate to
manage employer costs as designed
· Introduce a
pensioners' index for pensions that genuinely reflects' changes in
the cost of living for the retired
· Develop the
admitted body status mechanism in the unfunded schemes
Specific Recommendations for
the Local Government Pension Scheme
In addition to the general
recommendations, in the short term (i.e. from April 2011):
· Add a
further contribution band to the current progressive scale so that
high earners over £100,000 contribute 10% to increase the scheme
employee contribution yield
· The scheme
Regulator should recommend individual LGPS funds adopt prudent
funding strategies to set medium term funding targets of around
90%
· Finish and
implement the LGPS model fund cost capping and risk sharing
arrangement to set a c.20% scheme future service cost shared
approximately 2:1 between employers and employees with a
self-correcting mechanism for staying within these parameters
· The scheme
Regulator (CLG) should encourage LGPS funds to amortise past
service deficits over a longer period (e.g. 50 years) and to
explore means for insuring those deficits to both reduce costs and
make risks predictable
In addition, for the medium and longer
term (i.e. for consideration in the Commission's second
report):
· Consolidate
some of the smaller LGPS funds to save administration costs and
maximise investment efficiency
· Look to
replacing the final salary basis of the LGPS with an average salary
alternative of the same value to match the workforce profile better
and to reduce further scheme cost/benefit volatility
GMB full submission to the Hutton Commission and GMB's
2010 report into Public Sector Pensions is available at www.gmb.org.uk/pspc