The Government believes it is possible to redesign
public sector pensions in such a way that they...
- Ensure a good level of retirement income for staff,
with a reasonable degree of certainty
- Are affordable and sustainable – with controls over
costs & risks
- Provide a fair balance of cost and benefits between
public sector workers and taxpayers
- Protect those closest to retirement
- Stand the test of time – no more reform for at least
25 years.
 These longer term proposals being
discussed are expected to come into force in 2015.
Overall scheme design: The Government’s preferred
scheme design is a career average scheme rather
than a final salary scheme as we have now. In a career
average scheme, after each year in the Scheme, you
would build up a portion of that year’s pay in pension
benefits. This would then be held by us and increased
in line with national earnings each year until you
draw it. By the way, the ‘portion’ now being offered is
1/60th.... the same factor currently used in the LGPS.
But in return members’ contributions are likely to rise
(see later).
For many members a career
average scheme would provide similar benefits to the
current final salary scheme. In fact in these uncertain
times with pay freezes and pay cuts, some could even
be better off! But people who tend to fare less well in
career average schemes are those who enjoy career
progression. See the PDF link below for an explanation of career
average & final salary schemes.
10 year protection
for staff who are 55 or over by 1
April 2012, there will be no change to when they can
retire, nor any decrease in the amount of pension they
will get at normal retirement age [65].
Full inflation proofing
Once in payment, pensions will
go up each year in line with inflation [the CPI] as we
have now.
Retirement age
Normal retirement age is currently 65
in the LGPS. Another Government proposal is to tie this
in with State pension age, where this is later than 65.
Contributions
For many members, the benefits in
both a career average scheme and a final salary scheme
will be similar. And surprisingly, both schemes have
much the same overall cost. But one possible change
being proposed by the Government is that the average
member contribution rate should go up to 9.5%, to
more fairly ‘share’ the cost of the scheme between
employers and employees.
We’re concerned that this would make the
scheme unaffordable for many, and we would much
rather see smaller contribution increases, plus some
other adjustment - for example a less generous rate of
pension build up. This is one possibility being explored
by the DCLG (see next point).
But - and this is a big but - the proposals being
discussed are not necessarily the Government’s final
position. This is because the Government is dealing
with a selection of separate schemes - for example, the
LGPS, the Teachers, and so on. Each scheme can have its
own rules, but with the LGPS, employer costs must be
within a limit of 10.9% of pay.
The rules of the LGPS are written by the DCLG
[Department for Communities & Local Government].
So the latest proposals offer a career average scheme
based on 60ths, good protection for those within
10 years of retirement, but higher costs and later
retirement for many members. But remember, these are
general proposals by the Treasury - what really matters
is how the DCLG translate these into actual Regulations
for the LGPS.
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