Future of the Local Government Pension Scheme

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Future of the Local Government Pension Scheme
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What this Presentation Does

• Provides background on the DCLG consultation on
  the new look LGPS from 2008
• Outlines the DCLGs four options for consultation
  by 29 September
• Outlines Trade Union Side objectives for
  protection and the new look scheme

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How can you use it?

• Explain the four options to members and activists
• Explain the Trade Union Side objectives
• Get feedback
• Get your branch and employer to respond to
  DCLG using UNISONs response
• Recruit and campaign for equal treatment for the
  LGPS

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Their timetable not ours!

• Please note
• The timetable has been set by the DCLG
• The four options are their options not
  UNISONs
• It is important to engage members now!

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Government reviews all public sector schemes

• All public service schemes under review
• New schemes coming in April 2008
• Negotiations at critical stage
• Some already in place
• Reflect Government policy to reform all scheme
  based on increased life expectancy and desire to
  cut costs

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What is happening with other public service
negotiations

• Final Salary schemes for new members may be the
  preferred choice for most of the new schemes
• Most - but not all - schemes appear to be
  heading for two tier provision
• Discussions on future risk sharing taking place
  in some schemes
• Issues around future transfers between schemes
  not really started
• Trend to allow options for members to take a
  larger part of their benefits as cash

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What has happened in other schemes?

• NHS
• - final salary based on 1/60th
• - defined benefit
• - banded contributions from 5 ? 7.5
• Teachers
• - final salary based on 1/60th
• - defined benefit
• - employee contribution from 6 ? 6.4
• - employer contribution from 13.5 ? 14.1

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Why is Government not treating the LGPS equally?
They say

• LGPS is funded therefore real deficits caused
  by people living longer and past under-funding
• 85 Rule breaches age discrimination Regulations

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The LGPS is no gold standard

• Good average final salary scheme
• But average pension in payment only 3,800 per
  annum. For women only 1,600 per annum
• Minimum Income level for pension credit is
  currently 5,930 per annum for a single person
• Large numbers of low paid members cant afford to
  join

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Where are we now with the LGPS?

• England and Wales
• Amendment Regulations in place but can be
  amended
• The 85 Rule will remain for existing members
  until the New Scheme comes in April 2008
• Those who are 60 by 31 March 2016 will be
  protected on service up to that date
• Those 60 between 1 April 2016 and 31 March 2020
  will have the early retirement reduction tapered

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Where are we now with the LGPS?

• Scotland
• The proposed protections are better than what is
  now law in England and Wales those 60 by 31
  March 2020 will be protected on service up to
  that date

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New look Scheme TU Side underlying objectives

• No two-tier scheme
• Full protection and equal treatment with other
  public sector schemes
• Improvements in new look scheme
• Improvements to apply to existing and new members
• No decrease in employer contribution
• Average employer contribution 14.5, employees 6
• Future risks (eg. improved life expectancy)
  with employers
• Maintain cohesion and viability across 89 funds

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Increasing Take up Key to aim

• Only 60 part-time workers in LGPS
• 95 are women
• More than half the workforce in local government
  are part-time
• Cost / low pay are key barriers to joining

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TU Side - initial proposals for new look scheme
(1)

• Improvements to apply to existing members
• Good defined benefit scheme
• Final salary scheme
• 1/60th accrual rate not 1/80th
• Improved early retirement reduction factors
• End discrimination against unmarried partners

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TU Side - initial proposals for new look
scheme (2)

• Improve death in service cover
• Support variable employee contributions as fairer
  to the low paid / part-time members
• Increase member representation and power
• Extend Admitted Body Status on outsourcing

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TU Side - equality proofing essential

• Need to ensure scheme complies with all equality
  legislation
• Including new equality duties
• Need to ensure all aspects of the LGPS comply
  including discretionary provisions

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New look scheme options - timetable

• Current consultation informal
• DCLG will base next formal consultation on
  draft regulations based on responses to four
  options
• Will start formal consultation in Autumn
• DCLG want to give funds a year to prepare for new
  scheme in 2008

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What are the new look options?

• DCLG Discussion Paper on New Scheme for
  England and Wales - Consulting to 29 September
• Option A
• Existing final salary scheme i.e. pension builds
  up at the rate of 1/80th (1.25) of pensionable
  pay for each year of pensionable service
• Plus a lump sum of three times the pension (i.e.
  3/80ths)

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What are the new look options?

• Option B
• Final salary option where benefits build up at
  the rate of 1/60th (1.66) of pensionable pay
• No additional lump sum but members have the
  option to exchange some of their pension for cash

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What are the new look options?

• Option C1
• Career average option where the benefits build up
  at the rate of 1.85 of averaged pay (expressed
  as a but for comparison purposes it is roughly
  equivalent to a 1/54th)
• Each year would be revalued in line with prices
  i.e. the Retail Prices Index (RPI)
• No additional lump sum but option to exchange
  some pension for cash

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What are the new look options?

• Option C2
• Career average option where the benefits build up
  at the rate of 1.65 of averaged pay (expressed
  as a but for comparison purposes it is roughly
  equivalent to a 1/61th)
• Each year revalued in line with RPI plus 1.5
• No additional lump sum but option to exchange
  some pension for cash

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What are the new look options?

• Option D
• Based on either C1 or C2 but would allow the
  member to opt for a final salary option if the
  member pays significantly higher contributions

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Ill-health retirement, partners pension and
death in service benefits

• Options A D all have same proposals attached
• Consultation on changes to redundancy /
  efficiency compensation also taken place

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DCLG proposals on ill-health retirement (1)

• Informed by Treasury review in 2000
• Government wants better focussed and targeted
  provisions not one size fits all
• Wants two-tier provision in LGPS
• Two-tier provision proposed in Firefighters
  Pension Scheme

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DCLG proposals on ill-health retirement (2)

• Two-tier provision
• Two-tier provision proposed
• Top-tier those unable to perform the duties
  of local government employment AND unlikely to
  secure gainful or regular employment again
• For firefighters regular employment not less
  than 30 hours per week on average over a twelve
  month period

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DCLG proposals on ill-health retirement
Top-tier (3)

• DCLG propose
• Enhancement by 50 prospective service up to 65
• Could be greater on compassionate grounds
• Power to withdraw enhanced pension if recipient
  becomes capable of undertaking regular
  employment
• Enhanced element cancelled and pension based on
  accrued service

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DCLG proposals on ill-health retirement Second
tier (4)

• DCLG proposes
• 4/5 levels of benefit!
• Top level immediate payment of unenhanced
  benefit for life
• Lowest level unreduced payment of deferred
  benefit e.g. for two years
• Review mechanisms for different sorts of
  incapacities
• 85 ill-health retirements would be second tier

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DCLG proposals on partners pensions

• Options A D all include partners pension for
  all unmarried partners
• DCLG may wish to review in light of Government
  review of law on partners pensions
• Hint at future restrictions because more women
  entering labour force!!

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DCLG proposals on death-in-service benefit

• Options A D all include x3 death-in-service
  benefit
• Current provisions x2
• Trade Union Side supports proposals

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Separate consultation on Discretionary
Compensation on Redundancy

• DCLG gave no hint not touched on in
  negotiations
• UNISON objected and responded
• Would remove employer discretion on added years
  over 50 under discretionary payments regulations
• LGPS Regulation 52 allows 62/3 added years and
  lump sum
• Currently can be 10 added years up to 65 or
  maximum of 40 years
• Branches need to check employers policy
  statements

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Meeting Employers and Government

• Negotiations started again on 2 August
• Will continue as long as necessary
• We will press for more protection and a good new
  scheme for all members no two-tier
• GAD figures will be carefully examined

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Judicial Review

• Hearing will be 18 and 19 September
• We say that full protection is lawful and
  affordable
• If we win we expect full protection
• If we lose we will carry on negotiating

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More Industrial Action?

• We want full protection
• Or a combination of improved protection and
  scheme improvements which are equivalent
• If final proposals not acceptable we will
  re-ballot for industrial action

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What can you do?

• Recruit new members
• Get membership records up to date
• Circulate Campaign News and briefings
• Keep an eye on the website
• Most important! Discuss new look proposals
  with members

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