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Pension reform could force out high earners

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High-earners in local government will leave the pension scheme because of the government drive to reform, a senior finance officer has warned.

Chris Bilsland, the City of London’s director of finance, has warned that the days of a single tier Local Government Pension Scheme (LGPS) are over because of ministers’ “diversionary” attacks on chief officers’ pay and pensions.

“One of the things we have to worry about with this government is the populist approach,” he said, “and currently it looks like it is going to be popular to cut back on pensions”.

The government’s appointment of an independent commission have been preceded by the prime minister proposing a cap on public sector pensions and the deputy prime minister using a speech to describe public sector pensions as “gold-plated”, “unfair” and “unaffordable”.

“The government’s intent is very clear that there needs to be change,” Mr Bilsland told delegates at an LGC-organised conference. “That is where the commission will be coming from.”

As well as the proposal of a cap to prevent so-called “fat cat” pensions, it is suggested that the coalition government will also adopt the previous government’s plan to tax high-earners’ final salary pension payments, although in a modified form.

Describing the move as “punitive”, Mr Bilsland “Some senior staff are going to opt out of the scheme,” he said, particularly those “who are already relatively high earners, in the £100,000 territory, or people who aspire to be high earners”.

While the financial impact on the scheme might not be great, because of the number of people involved, Mr Bilsland said it would damage the strength of the scheme in other ways.

“If the people who make policy aren’t members of the scheme they are actually going to be less supportive,” he said.

“The great thing about the LGPS is that it was a single tier approach,” he said. “It will be a great shame when that change happens.”

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