Pension actuaries have said that an increase of 3% for public sector pension contributions will not undermine the plan’s viability.
Punter Southall has contradicted predictions of a large scale opt-out from unions, fund managers and the Local Government Association.
John Prior, head of Punter Southall’s public sector outsourcing team, said: “The majority are likely to stay in the scheme”.
He identified equivalent situations in the private sector, where employees in final salary schemes have mostly decided they would be better off continuing to save.
The LGA wrote to chancellor George Osborne, urging him to reconsider proposals to increase contributions to the Local Government Pension Scheme (LGPS) by an average of 3.2%.
While the Treasury has calculated that only about 1% of members would opt-out, a GMB survey of members suggested the proportion would be more like 40%.
Ministers including Mr Osborne are already in talks with unions, but one government source told The Telegraph the LGA was acting as a “tax-payer funded lobby group”.
Mr Prior’s comments contradicts earlier statements by the LGA, unions, fund managers and other actuary firms. Hymans Robertson partner John Wright said concerns that the contribution increase, coming after pay freezes and rising costs of living, could lead to a large number of opt-outs were “well-founded”.
Punter Southall’s head of public sector also said the London Pension Fund Authority’s claims of upheaval for investment markets were unfounded.
“If opt-outs increase, this is unlikely to have a significant effect on the scheme’s overall maturity and hence investment strategy in the short-term, so the idea that this change will distort the bond market and impact on the UK stockmarket seems far-fetched,” Mr Prior said.
However, he did accept the LGA’s argument that the fully funded LGPS scheme was in a very different position from other, unfunded, public sector schemes.
For example, he said, the LGPS had a higher pension contribution of between 5.5% and 7.5% depending on salary, compared with 1.5% and 3.5% for the civil service.
Therefore the proposed blanket increase may not be the fairest way of achieving cost savings, even if they are sustainable, he added.