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Proposals give DCLG power to cut pension benefits to slash costs

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The Department for Communities & Local Government has published draft regulations under which the secretary of state could cut pension benefits if councils’ pension costs exceed a set benchmark.

DCLG launched a consultation on the Local Government Pension Scheme (LGPS) (Amendment) (Governance) Regulations 2014 on 10 October.

In it, DCLG provided more detailed proposals on its mechanism for capping LGPS costs, the principles for which were established by the 2013 Public Service Pensions Act.

The government proposed to appoint the Government Actuary’s Department (GAD) to carry out regular valuations of the LGPS. These valuations will be used to determine the cost to employers of the LGPS.

However, if the cost to employers exceeds 19.5% of pensionable pay by 2% or more, the cap mechanism will be triggered. This means the secretary of state must consult with the LGPS Scheme Advisory Board on proposals to reduce costs.

If the secretary of state and the board cannot reach an agreement within three months, the secretary may cut the benefits that current workers can accrue in order to reduce costs. It would not affect the amount paid out to pensioners.

The consultation runs until 21 November 2014.

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