Lord Hutton’s report proposed longer term changes to all public sector schemes – probably from 2015 – but suggested individual schemes could look at ways of making short term savings before then. In our case, the rules of the LGPS are written by the DCLG (see glossary). This department has now launched a consultation exercise, inviting comments on its proposed short term changes to the LGPS.
A consultation is the opportunity for ourselves at
GMPF, employers, unions, and you as members, to
comment on the proposals. The closing date for
responses is 6 January 2012.
If you want to comment on the proposals, please
contact the DCLG directly. Their contact details
are included on page 1 of their full consultation
document which you can find via the link below.
 DCLG Consultation document 
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People are living much longer than previous generations – the average 60 year old is now living ten years longer than they did in the 1970s. So more of people’s lives are being spent in retirement – meaning it is much more expensive to provide them with their pensions. In the LGPS alone the amount paid out in pensions each year has risen from £1.8 billion in 1997 to £6 billion today. This is why the Government is looking at what it regards as a fairer split between what members and employers pay in.
The Government believes that any proposed increases in contribution rates should protect low earners and be progressive, so that higher earners will face higher increases, to reflect their larger pensions. To achieve this the Government proposes various options based around the following principles:
- No increase in employee contributions for those earning less than £15,000 a year (full time equivalent)
- For those earning up to £21,000 a year (full time equivalent), a 0.6% increase in 2012-13, rising to a 1.5% increase by 2014-15
- No more than a 6% increase for the highest earners.
To achieve the desired savings but to keep to these principles, two possible approaches are proposed, each based around different combinations of changes to both contributions and the accrual rate (the rate at which your pension builds up - see glossary for more).
Click on the links for details of each option:
Option 1
Option 2
The DCLG will consider other proposals that it receives during the consultation - for example we know the Local Government employers have already made a submission. Here at GMPF we will also be responding, and we will publish our submission on this website when we do.
The Government’s intention is that the proposed amendments to the scheme’s regulations will take effect from 1 April 2012, subject to the outcome of this consultation exercise.
If you would like to read the full text of the DCLG’s consultation document, you can find it via the link below.
DCLG Consultation document
| Accrual rate |
How fast a pension builds up for each year in the scheme. For example the LGPS currently works
out pensions like this: Pension = Pay x Membership ÷ 60
So each year you’re in the scheme you build up 1/60th of your pay. A change to the accrual rate might mean a
change to building up 1/65th for example. So the maths would then be: Pension = Pay x Membership ÷ 65 |
DCLG |
Department for Communities & Local Government – the Government Department that writes the rules of the LGPS. |
| LGPS |
Local Government Pension Scheme – the staff pension scheme for employees of local authorities, and other kindred bodies, including support staff within the police & fire services. Teachers, firefighters & police officers
are not in the LGPS. |
| Normal retirement age |
This isn’t the age you have to work till. But it’s the earliest you can choose to draw your
benefits without an early retirement reduction. Members retiring through ill health or redundancy never face
early retirement reductions, no matter what age they retire. Currently normal retirement age is 65 in the LGPS. |
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An increase in employees’ contributions on a gradual basis from April 2012 as follows:
Current and proposed contribution rates (the amount of increase is shown in brackets).
Pay Band |
Current |
2012/13 |
2013/14 |
2014/15 |
£0 - £12,900 |
5.5% |
5.5% (0.0%) |
5.5% (0.0%) |
5.5% (0.0%) |
£12,901- £15,100 |
5.8% |
5.8% (0.0%) |
5.8% (0.0%) |
5.8% (0.0%) |
£15,101- £19,400 |
5.9% |
5.9% (0.0%) |
6.0% (0.1%) |
6.0% (0.1%) |
£19,401- £21,000 |
6.5% |
6.7% (0.2%) |
7.2% (0.7%) |
7.7% (1.2%) |
£21,001- £32,400 |
6.5% |
7.2% (0.7%) |
8.0% (1.5%) |
8.3% (1.8%) |
£32,401- £43,300 |
6.8% |
7.5% (0.7%) |
8.3% (1.5%) |
8.7% (1.9%) |
£43,301- £60,000 |
7.2% |
8.2% (1.0%) |
8.7% (1.5%) |
9.0% (1.8%) |
£60,001- £81,100 |
7.2% |
8.7% (1.5%) |
9.2% (2.0%) |
10.0% (2.8%) |
£81,101- £100,000 |
7.5% |
9.0% (1.5%) |
9.8% (2.3%) |
11.0% (3.5%) |
£100,001- £150,000 |
7.5% |
9.5% (2.0%) |
11.0% (3.5%) |
12.0% (4.5%) |
£150,001 + |
7.5% |
10.0% (2.5%) |
12.0% (4.5%) |
12.5% (5.0%) |
 Remember if you’re a tax payer, you get tax relief on your contributions. So according to the DCLG, initially someone
earning £25,000 would pay an extra £12 a month after tax savings.
This would be coupled with the following change in the accrual rate:
- A change from the current 1/60th scheme to a 1/64th scheme in 2013/14 and to a 1/65th scheme in 2014/15
- For our £25,000 earner, a move to a 1/65th scheme would mean them building up around £32 less annual
pension, for each year in the scheme.
Another option for the Government to achieve some of the savings it is looking for, would be to link the scheme’s
normal retirement age to State pension age – in other words a move from 65 to 66.
Remember, whatever proposals are accepted, it’s only benefits in the new
scheme whose value is affected – your existing benefits will be protected! |
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An increase in employees’ contributions on a gradual basis from April 2012 as follows:
Current and proposed contribution rates (the amount of increase is shown in brackets).
Pay Band |
Current |
2012/13 |
2013/14 |
2014/15 |
£0 - £12,900 |
5.5% |
5.5% (0.0%) |
5.5% (0.0%) |
5.5% (0.0%) |
£12,901- £15,100 |
5.8% |
5.8% (0.0%) |
5.8% (0.0%) |
5.8% (0.0%) |
£15,101- £19,400 |
5.9% |
5.9% (0.0%) |
6.0% (0.1%) |
6.0% (0.1%) |
£19,401- £21,000 |
6.5% |
6.5% (0.0%) |
6.8% (0.3%) |
6.8% (0.3%) |
£21,001- £32,400 |
6.5% |
6.8% (0.3%) |
7.2% (0.7%) |
7.5% (1.0%) |
£32,401- £43,300 |
6.8% |
7.1% (0.3%) |
7.8% (1.0%) |
8.2% (1.4%) |
£43,301- £60,000 |
7.2% |
7.8% (0.6%) |
8.4% (1.2%) |
8.8% (1.6%) |
£60,001- £81,100 |
7.2% |
8.7% (1.5%) |
8.8% (1.6%) |
9.5% (2.3%) |
£81,101- £100,000 |
7.5% |
9.0% (1.5%) |
9.8% (2.3%) |
10.5% (3.0%) |
£100,001- £150,000 |
7.5% |
9.3% (1.8%) |
10.8% (3.3%) |
11.5% (4.0%) |
£150,001 + |
7.5% |
9.5% (2.0%) |
11.8% (4.3%) |
12.5% (5.0%) |
Remember if you’re a tax payer, you get tax relief on your contributions. So according to the DCLG, initially someone
earning £25,000 would pay an extra £5 a month after tax savings.
This would be coupled with a change in the accrual rate as follows:
- A change from the current 1/60th scheme to a 1/67th scheme from April 2014
- For our £25,000 earner, a move to a 1/67th scheme would mean them building up around £44 less annual
pension, for each year in the scheme.
As with option 1, the Government could instead achieve some of the savings by a change in normal retirement
age.
Remember, whatever proposals are accepted, it’s only benefits in the new
scheme whose value is affected – your existing benefits will be protected! |
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