Lord Hutton’s plan to maintain the final salary link to past pension contributions will prove expensive for employers, local government employers warn.
Local Government Group has criticised a number of Lord Hutton’s 27 recommendations for reform of public sector pensions in its formal response to the peer’s report.
In a letter to communities secretary Eric Pickles, LGG workforce programme board chair Sir Steve Bullock (pictured)said accrued rights should be linked to a member’s salary at the point when they move to the new scheme not to their final salary when the member leaves or retires as recommended by Lord Hutton.
“This potentially has significant cost implications for employers participating in the Local Government Pension Scheme and, by extension, for council tax payers and retains a final salary link for perhaps another 50 or so years for a 16 year old joining the scheme today”, he stated in the letter.
Some of Sir Steve’s other comments have angered union leaders, in particular his dismissal of the peer’s call for better member representation on pension fund boards. He also said there were arguments against the tiered contribution rates recommended in the former Labour minister’s report.
GMB’s national secretary for public services, Brian Strutton, called for Sir Steve, a long-standing member of GMB, to be expelled from the union for putting his name to the letter.
“After only 10 weeks of deliberation the Local Government Group has now come up with a set of responses to the Hutton report that insults LGPS members and would destroy the scheme,” he said.
Sir Steve’s claim that “the performance of the [LGPS] funds has no direct impact on scheme members”, and therefore they did not need to be represented on pension fund boards, was “arrogant nonsense”, Mr Strutton said.
“Firstly because it is scheme members’ money and secondly because if the funds were in surplus there would be no need for reform,” he argued.
Reducing contributions for higher earners would lead to hundreds of thousands of lower paid members leaving the scheme, Mr Strutton said. “That, as the LG Group pointed out when complaining to government about possible contribution hikes, would destroy the LGPS funds and here they are making exactly the same mistake themselves.
“It’s a shame the LG Group still refuses to talk to the TUs about pensions because we could have discussed these issues and perhaps helped them form a better view.”
In response, LGG head of pensions Terry Edwards told LGC that the employers were in talks with unions and pointed out that all LGPS stakeholders had been asked to submit their own views on Lord Hutton’s recommendations.
Mr Edwards dismissed the suggestion that LGPS funds were scheme members’ money and said reforms were necessary because of increased life expectancy, not because of the way funds were invested.
“We have also not recommended reducing contributions for high earners,” he added. “We have simply said that there are arguments for and against tiered contribution rates.”
Responding to a number of Lord Hutton’s other recommendations, LGG said:
- Publication of data that allows simple comparisons to be made between LGPS funds and different pension schemes would only be of academic interest and its usefulness would be “questionable”
- Any automatic changes to the LGPS based on the recommended fixed cost ceiling should be decided by the minister responsible for the local government scheme, not be a standard position for all public sector schemes
- Preventing future non-public service workers from accessing public sector schemes would be a mistake for reasons previously set out by LGG including damaging the sustainability of the LGPS
- The Department for Communities and Local Government (DCLG) should be regulator of the LGPS, not the Pensions Regulator
- Regular analysis of fiscal impact by the Office for Budget Responsibility may not be relevant because the LGPS is not related to the spending it oversees, the government’s Annually Managed Expenditure (AME)
- Centrally collated comprehensive data covering all LGPS funds and comparisons between them may be unnecessary because much of the data is published by the funds themselves or by DCLG. There would also be resource implications to such a move
- Consideration has to be given to the cost and practicalities of moving public sector schemes to a common set of standards in order to allow benchmarking
- The argument for new primary legislation for public sector schemes is not convincing.
- Treasury consent for changes to benefit design or valuing benefits should not be extended to the LGPS