Environment minister Sir Paul Beresford announced on Tuesday that after a two-year scrutiny of the superannuation scheme the DoE would be sticking with the current statutory framework.
The scrutiny had raised the possibility of a deregulated trust-based system, similar to the private sector, with councils being allowed to set up their own funds.
This could have left new employees joining the scheme dependent on the performance of funds rather than having guaranteed payments.
'Local government pension arrangements will still be provided under a statutory framework, though rather broader and less detailed than at present,' he said. 'The pension entitlements of all existing members and pensioners within the present statutory framework of the local government pension scheme will be protected.'
The announcement was welcomed by councils, which had expressed almost complete opposition to radical change.
'We have got the pudding we actually ordered,' said Charles Nolda, secretary to the UK Steering Committee on the superannuation scheme. 'We argued for a continuation of the statutory scheme with more local flexibility.'
But Mr Nolda said the 'nutritional value of the pudding' would depend on the discretion allowed to councils.
He acknowledged the government may make it possible to pay less than is currently required by law. 'That is not the flexibility we have in mind,' he said.
Mr Nolda said councils are likely to look for flexibility on the margins, such as allowing the payments of larger lump sums while reducing annual payments.
The UKSC has already started a major consultation on how the scheme could be improved.
It has emerged from the DoE scrutiny that the scheme costs £122 million a year to administer, with around £500,000 being spent by the DoE on regulation.
Administration costs per pension fund member are highest in inner London at £91.70, which is £50.70 more than metropolitan funds (see table). The costs are linked to the numbers served by the schemes, with smaller numbers meaning higher costs per head.
London boroughs have an average size of 9,000, while metropolitan districts have around 44,000 members.