Every three years funds like us have a valuation – a ‘health check’ to see how much we have in the pot, and how much we have to pay out. The next valuation is in 2010. The CLG is concerned that many funds are expected to have substantial deficits – in other words ‘not enough in the pot’. The impact of this is that it can lead to employers having to pay more in. So the CLG is looking for some feedback on suggested amendments to the Scheme rules to help with this short term problem, and to help maintain the Scheme in the longer term.
The Government wants to make sure the Scheme caters for the needs of its current and future workforces, whilst remaining fair both to providers and beneficiaries, as well as to taxpayers who ultimately guarantee its pension promise.
The CLG’s letter says that traditionally funds have aimed for something called 100% funding – in other words having £1 in the pot for every £1 they have to pay out. However the CLG questions whether full funding is required, taking into account the long term nature of local government.
One suggested approach is to have a more flexible approach to funding, with a break down of each employer’s liabilities over the short, medium and long term. When employers’ contributions are being set following a valuation, the actuary could look at the affordability of a new rate.
Another approach would see individual funds like us setting their own funding target that could be lower than 100%, “provided this could be sustained and transparently justified by the pension fund administering authority”.
We may also see changes to member contributions, making the Scheme more affordable for the lower paid, whilst collecting more from the higher paid. [The 2008 Scheme changes already went some way to achieving this, but “more of the same” is a possibility]. New members’ rates could come in as early as 2010, and may look like this:
|
Band |
Pay range per year |
New contribution rate |
Difference from current rate |
1 |
Up to £15,000 |
5.5% |
No change for members earning up to £12,000. Slightly cheaper for those earning between £12,001 and £14,000. |
2a |
£15,001 to £18,000 |
6.0% |
0.1% more expensive |
2b |
£18,001 to £22,000 |
6.0% |
0.5% cheaper |
3 |
£22,001 to £30,000 |
6.5% |
No change |
4 |
£30,001 to £40,000 |
7.0% |
0.2% more expensive |
5 |
£40,001 to £75,000 |
7.5% |
0.3% more expensive |
6 |
£75,001 to £100,000 |
8.5% |
1% more expensive |
7 |
£100,001 or over |
10.0% |
2.5% more expensive |
The CLG’s letter has been sent to various unions and also GMPF employers. However if you would like to comment personally on the consultation, please see paragraph 45 of the CLG’s letter for contact details. The deadline for comments is 30 September 2009. Finally, the CLG’s letter also reports that a “later, separate exercise will consider new ways in which the LGPS could possibly be reformed to provide more workforce-focused pension provision for the 21st century”.
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