Employers and unions have set out their proposals for how Local Government Pension Scheme costs should be managed - without them being approved by the government - following delays in gaining ministerial approval.
The LGA and three largest local government unions have issued a joint statement of their suggestions for reform of the scheme after waiting since July for a formal government response.
Under their proposals any movement beyond two percentage points or more from the target cost of 19.5% of pensionable pay of LGPS members would require changes to be made to the scheme.
The LGA and unions have also called for a national LGPS board to be established to manage best practice, transparency, technical details and relationships with the scheme regulator - see below for more details.
The decision to publish these “workstream two” proposals before receiving ministerial sign off is in stark contrast to the way the LGA and unions managed earlier “workstream one” proposals focused on the calculation of pension scheme member benefits.
The changed approach comes after a number of key deadlines were missed due to delays within Whitehall causing frustration amongst local government negotiators who, as previously reported by LGC, warned the 2014 implementation date for reforms could be missed as a result.
Jeff Houston, LGA head of pensions, said the decision had been taken to publish the proposals because of a need to keep the sector informed despite ministerial delays. He said the Department for Communities & Local Government was aware of the decision before the proposals were released, but he refused to say whether they approved of the move. “It’s our release,” he said.
Sir Steve Bullock, chairman of the LGA’s workforce board, said: “We are absolutely committed to the agreement reached earlier in the year with the unions. The reforms we jointly propose are fair to workers and affordable to the taxpayer. They should be adopted in the swiftest possible time to deliver certainty to both pension scheme members and employers.”
Unison head of local government Heather Wakefield said: “While these proposals are still subject to discussion, we hope that an agreement with the government can be reached in the near future.”
- Both governance and cost management are equally essential to the future sustainability of the scheme and should not be considered in isolation.
- A national LGPS board would be set up to include representatives of scheme employers, scheme members, the Government and professional bodies. The remit of the board would be to extend best practice, increase transparency, co-ordinate technical and standards issues and provide an effective liaison with the scheme regulator.
- The board would also manage the future cost of the scheme and explore effective improvements in value for money in the areas of administration and investments.
- Although not having any statutory powers of its own the board would make recommendations to the Secretary of State, the regulator or professional standards bodies in order to further its remit.
- At the local level we propose that boards provide for a greater degree of segregation between funds and administering authorities and that the potential for conflicts of interest at both member and officer level is reduced.
- Membership of local boards is proposed to require a minimum recognised level of skills and knowledge and to include representation for fund employers and trade unions.
- We also propose that best practice with regard to transparency and accountability is extended across all funds.
- For cost management a total future service target cost for the scheme from April 2014 be set at 19.5 per cent.
- The cost of the scheme shall be measured at each valuation taking into account both model and individual fund data with movements in cost driven by changes to membership data or assumptions reflected in changes to future scheme design.
- Such changes are to be considered, and actions to amend the scheme agreed by both employers and unions with recommendations made to the secretary of state. Where the movement is 2% or more in either direction the secretary of state shall be obliged to take action.
- Although financial assumptions are excluded from the formal process we are proposing that movements in these be considered by the national board in order to ensure the future sustainability of the scheme.
- Finally the project has recommended that a working party be set up to investigate potential solutions to the issue of past service deficits.