|| BRIEFING FOR MSPs ON THE PROPOSED
CHANGES TO THE LOCAL GOVERNMENT PENSION SCHEME IN SCOTLAND
What changes to the LGPS are being introduced
and why does UNISON oppose them?
The UK Government has laid regulations to amend
the rules governing retirement in the Local Government Pension
Scheme (LGPS), to come into effect from April 2005 in England.
The regulations would:
In Scotland, the SPPA are proposing the same changes to come into
effect on 1 April 2006. They and Ministers have indicated that these
changes are 'not optional' for Scotland.Separately, the SPPA published
a consultation paper on the overall design of the LGPS. This again
mirrors a similar consultation in England led by the ODPM.UNISON
has consistently opposed the changes to the LGPS retirement rules
contained in the draft regulations for the following reasons:
- Abolish the "rule of 85" for future pension service.
Under this rule, workers over 60 whose age plus their length
of LGPS membership comes to 85 or more are currently entitled
to retire on an unreduced pension.
- Increase from 50 to 55 the minimum age at which scheme members
can receive their pension. This will mean, for example, that
workers between 50 and 55 who are made redundant will lose their
entitlement to an immediate pension.
Why does UNISON believe that the implementation of the regulations
should be postponed? The proposed changes contained in the UK
Government's regulations are due to come into effect from April
2005 and April 2006 in Scotland. This will mean that they are introduced
in isolation from the wider reform of the LPGS. In Scotland there
is no consultation body as in England. It will also mean that a
decision is taken before full consideration is possible of all the
relevant evidence, in particular the results of the 2004 LGPS actuarial
valuations, which are still not fully available.UNISON believes
that the changes contained in the UK Government's regulations should
be postponed, in order to allow time a full and properly informed
debate on the proposals in the context of the overall reform of
the LGPS. We are calling on MPs to show their support for this position
by signing EDM 597 calling for which has been tabled by Paddy Tipping
MP.The ODPM has set out the reasons why it believes that it is important
for the proposed changes to the LGPS retirement rules to take effect
from April 2005. The key points that UNISON would draw to MSPs'
attention in response are as follows:
- Many low-paid, hard-working public service workers will have
to work for five more years in order to receive an unreduced
pension. For workers in stressful and physically demanding jobs,
there are real questions about whether they will be capable
of doing this.
- Workers who choose to retire at 60 will see their pensions
reduced by up to 30% - increasing the chance that they will
be forced to depend on means-tested benefits in order to survive
- Although there have been improvements in life expectancy over
the past 30 years, these have been concentrated amongst the
most affluent and have not benefited many public service workers
– between 1972 and 1999, the life expectancy at 65 of female
workers in social class V did not improve at all.
- The changes represent a cut in pay and conditions, and have
been imposed without proper negotiation
- The briefing refers to an actuarial assessment leading to
the 2004 actuarial valuation exercise that identified pressures
which could have resulted in employer contributions going up
by at least 6 per cent of payroll. However, this assessment
has not been shared with UNISON or the other trade unions, despite
repeated requests to the ODPM to disclose the information on
which its position is based.
- It is likely that many local authorities will choose to phase
in any increase in employer contributions over a three year
period, with the result that increases will not impact in full
on 2005 council tax rates.
- It is difficult to see how implementing the proposed changes
a year ahead of the other public sector schemes will have a
major impact on the long term stability of the LGPS. The Government
estimates that delaying the changes by one year would cost local
authorities around £200 million, equivalent to only about 1.5%
of the total annual pension bill for LGPS employers in England
and Wales. The effect of bringing in the proposed changes a
year ahead of the other public sector schemes will be minor
in its effect on future employer contribution rates compared
to the effects of the widely differing funding models used by
different funds in the LGPS and the decision over how many years
to spread benefits.
- The bulk of the employer contribution increases relate to
the underfunding of past service costs, and not to any increase
in the long-term cost of future pension service. In the words
of the Local Government Employers' Organisation itself: "The
rise in employers contribution rates mainly reflects the past
underfunding of liabilities which have to be paid for and are
inescapable." Specifically, a substantial part of the current
employer contribution increases is attributable to the pension
contribution holidays that many LGPS employers took in the early
90s, when they were allowed to deliberately underfund their
schemes by up to 25%. Employees continued to pay their full
contributions during these periods. Were it not for this history
of past underfunding by employers, the contribution increases
they now face would be much smaller.
- Changes to schemes do not happen just at valuation dates.
Actuaries can set an employer contribution rate for three years
taking into account any changes from any future date.
- The 89 funds that make up the LGPS vary greatly, with wide
divergences in employer contribution rates, investment performance,
and funding levels. These differences raise real questions about
the management of local authority pension funds, in which trade
union reps are allowed only to act as observers. Are scheme
members being penalised because the mismanagement of some funds
has led to higher than necessary contribution increases?
- It is not legitimate to argue that changes to the LPGS have
to be introduced ahead of the other public sector schemes because
it is a funded scheme. Funded schemes are if anything more sustainable
than unfunded schemes, as they invest their contributions to
provide a pot of money from which they can pay out pensions,
whilst with unfunded schemes, pensions have to be funded from
the tax revenues of the day. LGPS members have always been told
that having a funded scheme is an advantage – why is the Government
now using it to attempt to justify treating them worse than
those in the unfunded schemes?
- At the Labour Party Policy Forum held at Warwick in July 2004
ministers agreed that: "It is vital that any proposed changes
to the public sector pension schemes are the subject of detailed
consultation with the relevant trade unions with a view to agreeing
changes that are both fair in their impact on public service
workers and based on firm evidence and sound analysis."
This promise now needs to be followed through.
3 February 2005
For further information contact: Dave Watson email@example.comKenny
Or visit our pensions page at www.unison_scotland.org.uk
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