Higher pension contributions for top earners?

Bob Holloway of the Department for Communities & Local Government revealed the proposal would be contained in a long-delayed consultation paper on the future of the local government pension scheme (LGPS).

Mr Holloway, who is head of the department’s LGPS team, said the paper would explore whether pension pay outs should be based on final salaries or average earnings across the employee’s career.

Speaking at the Chartered Institute of Public Finance and Accountancy annual conference, he said that the consultation would also look at how much individual employees paid into the scheme.

“We’re looking at a higher sum for those earning £75,000 and over,” he said, adding that the consultation would also examine the introduction of a lower contributions band for lower paid staff.

But he warned that, based on discussions with actuaries, the stock market’s current poor performance councils’ own contributions faced substantial rises following next year’s triennial revaluation of the LGPS.

“We are talking about a 7% or 8% increase in employers’ contribution rates.”

He said the 2010 would be an “exceptional circumstance”, but there was no guarantee share prices would bounce back to pre-recession levels.

“There are serious people suggesting that equity markets will never be the same again.”

Given the cost pressures facing the LGPS, “something has to give”, he added.

John Wright, head of public sector consulting at actuaries Hymans Robertson, said that there was a “real danger” that higher contributions would feed back into salary levels.  

Chris Bilsland, chamberlain of the City of London Corporation, expressed concern that a blanket £75,000 top rate could be a “difficult sell” given the variations in cost of living and salaries across the country.

But Mr Bilsland, who is chair of CIPFA’s local government policy panel, argued that final salaries represented an unjust base for calculating pension payments, adding: “It discriminates against women and part-time workers. It’s not about affordability, it’s about equity.”  

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