 Ministerial Statement 
The Government and the TUC have decided that to further the discussions that they have been having, discussions within the individual schemes should take place. So rather than discussions about public sector pensions as a whole, discussions should also take place regarding the LGPS, the NHS Scheme, the Teachers Scheme and so on. These scheme discussions are to deliver “initial proposals for reformed schemes by the end of October this year, allowing further work to finalise detailed scheme design before the Government introduces legislation in due course”.
Mr Alexander also said that the Government intends to ensure that “the pensions individuals receive at normal pension age would be broadly as generous for low and middle income earners as it is now”.
The Government is also progressing its plans to make short term savings (with the LGPS to be treated separately – see later), but is committed to protecting the low paid. Consequently there should be no increase in employee contributions for those earning less than £15,000 a year and no more than a 1.5% increase in total for those earning £15,001 to £21,000 a year. Any increases in contributions are to be phased in over three years, starting in 2012/13. The Government also proposes that higher earners will pay more, but their contributions should increase by no more than 6% of pay by 2014/15, and by no more than 2.4% in 2012/13.
Regarding the short-term savings, Mr Alexander said:
“The Government remains committed to securing the full Spending Review savings of £2.3 billion in 2013-14 and £2.8 billion in 2014-15, requiring each scheme to find savings equivalent to a 3.2 percentage point increase. Scheme specific discussions will make proposals on how these savings are achieved and will be required to make proposals by the end of October this year. For Local Government, the Government recognises that the funded nature of the scheme puts it in a different position and will discuss whether there are alternative ways to deliver some or all of the savings.”
So, the savings for the other public sector schemes that are to commence in April 2012 are likely to come from increased employee contributions. But increasing employee contributions is only one of the ways that pensions, from the scheme’s point of view, can become cheaper to provide. The other two ways are:
- to pay pensions later, and thus make normal retirement dates later, and
- to reduce benefits, especially the rate at which retirement benefits build up.
Consequently if you are member of the Fund now and, for example, your contributions increase in April, this will only apply to your future membership of the Scheme – there will be no retrospection. Any future increase in employee contributions will not devalue the membership you are already building up. We will also publicise any changes, as soon as we hear about them, so keep looking out for our Pension Power newsletters and newsflashes on the web like this.
Since Mr Alexander’s statement we have had a letter from the Department of Communities and Local Government (the DCLG), being the Government department that writes the Scheme rules. In summary it speaks about both the short term changes that will apply in April, and the long term ones that will apply, the DCLG foresee, in 2015. You can read the full version via the link below.
Letter from the DCLG  (60KB)
Regarding the short-term ones, the Local Government Group (representing employers) and the local government trades unions have been invited by the Secretary of State, Eric Pickles, “to establish a package of measures to secure the necessary short-term savings equivalent to the 3.2 percentage point increase in other schemes”. The Local Government Group and the unions held their first joint meeting on 27 July 2011. Their initial exchange of views was reported as being constructive and both sides agreed that they value the Scheme and its long term sustainability. It was agreed that a series of meetings should be held over the coming weeks.
The Secretary of State has asked that the outcome of the discussions between the LG Group and the trades unions be reported to him by 9 September, to allow time for the formal statutory consultations that must take place before the Scheme’s rules can be changed. Thereafter the DCLG’s timetable to introduce the April changes is as follows:
- details of the proposed changes published by the end of September;
- a 12 week statutory consultation exercise in October, November and December 2011 on amending regulations;
- consideration of responses and decisions by Ministers in early 2012;
- making the amending regulations as soon as possible thereafter; with
- Scheme changes coming into force on 1 April 2012.
We therefore know that there will be changes to the Scheme, both in April and, probably, in 2015, but we don’t know exactly what these will be at the time of writing. We will however publish further newsflashes once the details become known, and report the changes in our Pension Power newsletter. The changes will not affect deferred members and pensioner members of the Fund.
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