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Pension changes 'not based on LGPS data'

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Treasury estimates of the impact of increased contribution rates on pension funds were not based on Local Government Pension Scheme data, LGC has learned.

A Treasury spokesman confirmed that its calculation that increased contribution rates will result in a 1% reduction in the pay bill from which pensions would be deductible, did not apply to the LGPS because it is a funded scheme.

The effect of increased contribution rates for LGPS members has been hotly contested. Fund managers, the Local Government Association and actuaries have all argued the opt-out rate will be much higher than 1%.

In meetings with union leaders, Treasury officials have not provided further details of how the figure was calculated, nor has the department assessed the social impact of opt-outs.

The government has emphasised that the estimate has been signed off by the independent Office of Budget Responsibility - although a senior Treasury official admitted earlier this month there was “uncertainty” about the 1% figure.

Surveys conducted by the unions Unison and GMB have indicated that between 20% and 53% of members could opt out.

Unison’s head of pensions Glyn Jenkins described the lack of information as “amazing” and said the Treasury’s opt-out claims were “bizarre”. He said unions would strongly advise members to remain in the scheme but added that some might make a short-term decision.

The contribution increase was first suggested by Lord Hutton in his interim report in December. GMB’s national secretary for public services, Brian Strutton, criticised the peer’s final report for failing to take account of the contribution increase. “As a result, many of his conclusions are questionable,” Mr Strutton said.

The Hutton report recommended replacing final-salary schemes with a career-average model, but said accrued rights should be protected. Lord Hutton also called for retirement ages to be linked to the state pension age and for a cost ceiling on employer contributions to protect the taxpayer.

Much of his report was welcomed, but his advice that it was “undesirable” for non-public sector workers to be members of public sector pension schemes has provoked much comment.

John Wright, actuary and partner at Hymans Robertson, said it was an area of concern when there were councils “looking to outsource everybody and their dog”. Acceptance of the recommendation could produce “a levelling down by the back door” with out-sourced workers receiving inferior pension provision.

Robert Butler, pensions expert at law firm Mills & Reeve, warned that the “flawed move” could lead to rising pensioner poverty.

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