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:

• 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.

• 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 in retirement.
• 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 d.watson@unison.co.ukKenny MacLaren k.maclaren@unison.co.uk Or visit our pensions page at www.unison_scotland.org.uk