WIREDGOV

A statutory consultation proposing changes to local government pensions that deliver fair cost savings has been published recently by the Department for Communities and Local Government.

The Government's draft proposals aim to deliver short-term savings of £900 million, by 2014/15 to the Local Government Pension Scheme in England and Wales. This was set in the Spending Review 2010, which required all public service schemes to make savings to protect the taxpayer.

In recognition of the way the Local Government Pension Scheme is funded it was agreed alternative ways to find savings could be considered if they retained council taxpayer protections. The consultation proposes a balanced mix of increasing employee contributions and adjusting the accrual rates.

The paper proposes a progressively phased increase in employees' contribution tariff from April 2012 that would raise an additional £450 million, or 1.5 per cent of pay, and a change in the accrual rate from April 2013 to raise an additional £450 million, or 1.5 per cent of pay.

The consultation actuarially acknowledges that a lower contribution tariff increase but offset by a larger change in accrual rate, or vice versa, could also deliver the required level of savings.

Any increases in contribution rate will progressively protect low earners and mean high earners pay in proportionally more reflecting their more generous pensions. This mean the Local Government Pension Scheme will continue to be an attractive scheme to all existing and future members.

To that effect a revised pension contribution tariff included in the package proposes:

• no increase in contribution for all those Scheme members earning less than £15,000
• no more than a 0.6 per cent increase for those earning up to £21,000 in 2012/13; and
• high earners will pay progressively more than those in lower salary bands.

Local Government Minister Bob Neill said:

"Lord Hutton's report sets out why public sector pensions need to be reformed to more fairly protect taxpayers.

"Today's pension proposals set out a way to save £900 million over the next three years that protects low earners from excessive increases - those who earn less will be asked to pay in less than high earners in the Scheme.

"We will continue to engage with local government and trade unions throughout the consultation as they have a key role to play. We hope all parties will take the time to consider these proposals in a constructive manner."

Notes to editors

1. The Government commissioned Lord Hutton to chair the Independent Public Service Pensions Commission to review public service pensions and to make recommendations on how these can be made sustainable and affordable in the long-term, whilst at the same time being fair to both public sector workers and the taxpayer. Lord Hutton concluded that reform was needed. The cost of local government pensions to the taxpayer rose from £1.8 billion in 1997 to £6 billion now. The Government accepted his recommendations as a basis for consultation with public sector workers, trade unions and other interested parties about the need for long term reform of public service pension arrangements.

2. In advance of that long term reform process, Lord Hutton published his interim report on 7 October 2010, and recommended that if the Government wished to make short term savings to meet current cost pressures, then raising contribution rates would be the most effective way to achieve that objective. Lord Hutton's interim report is available via the HM Treasury website at: www.hm-treasury.gov.uk/indreview_johnhutton_pensions.htm (external link).

3. The closing date for responses is 6 January 2012. The intention is that the proposed amendments to the Scheme's regulatory framework, will take effect on 1 April 2012, subject to the outcome of this consultation exercise. Full details of the consultation paper can be found here: www.communities.gov.uk/publications/localgovernment/pensionconsultation.

4. The progressive phasing of the employee contribution tariffs to achieve savings of £450 million would look as follows:

5. This consultation exercise marks the start of the formal statutory consultation process for proposed amendments to the Local Government Pension Scheme Regulations (mentioned above), as required by section 7(5) of the Superannuation Act 1972.

6. The publication of the Local Government Pensions Scheme consultation follows a period of discussion between the Local Government Group and local authority trades unions about pension savings by 2014/15. If those discussions continue through The Local Government Pension Scheme Policy Review Group which has extensive representative membership of employees and trade unions, or any other proposals eventually come forward, whether separately or jointly, these can also feed into the statutory consultation process alongside any other comments or proposals submitted by other consultees.

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