LOCAL GOVERNMENT PENSION SCHEMES (LGPS)

 

With an estimated 4.6 million members, the Local Government Pension Scheme is one of the largest public sector pension schemes in the UK.

 

The LGPS is a nationwide scheme and is a valuable part of the pay and reward package for employees working in local government or working for other employers participating in the Scheme.

The Scheme is administered locally for participating employers through 99 regional pension funds.

LGPS rules

The rules are contained in regulations made by Parliament after consultation with both employee representatives (Trade Unions) and employer representatives. The rules comply with the relevant provisions of the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004.

The LGPS provides salary-related, defined benefits, which are not dependent upon investment performance.  As it is a statutory funded pension scheme, it is a secure pension arrangement with rules set out in legislation made under an Act of Parliament (the Superannuation Act 1972).

The LGPS is now a registered public service scheme under Chapter 2 of Part 4 of the Finance Act 2004. It has achieved automatic registration by virtue of Part 1 of Schedule 36 of that Act (because the LGPS was, immediately before 6 April 2006, both a retirement benefits scheme approved under Chapter I of Part XIV of the Income and Corporation taxes Act 1988 and a relevant statutory scheme under section 611A of that Act). The LGPS is contracted out of the State Second Pension (S2P) because it provides benefits that are as good as most members would receive if they had been in the S2P.

 

 

Pension arrangements for fire fighters, police and teachers

Separate arrangements apply for the pensions of the police, fire fighters and teachers. The police and fire fighters' pensions are provided through unfunded schemes administered locally, and the cost of police and fire fighters' pensions are therefore included in local authority expenditure. Teachers’ pensions are provided through a notionally funded scheme administered by the Department for Education (DfE). There is no fund of assets, and teachers’ pensions are paid by the DfE. Employers' and employees' contributions are paid by local authorities to the DfE and are recorded as expenditure in their revenue accounts.

These notes do not contain details of pension schemes for NHS employees and the Armed Forces

MPs pension scheme

 

This is a final salary scheme with a choice of accrual rates. Members can choose to contribute at 1/40^th, 1/50^th or 1/60^th.

It is a contributory pension with the contribution rates set at 11.9%, 7.9% and 5.9% respectively.

SUMMARY

 

 

It would require an Act of Parliament to make any major changes to the current scheme arrangements.

 

1.    Higher paid management level employees cost the taxpayer far more in Employer contributions than lower paid, frontline workers (more managers, less frontline workers). The primary concern of this web site is Surrey County Council (SCC).

 

2.    SCC contributions are now in tiers, depending on salary, as follows:

                                                                     Annual Contribution Rate
                Annual Pay                                 by employee     by employer                                                                                                                 (i.e. taxpayer)

£0                 -             £12,600                       5.5%                   14.8%
£12,601        -             £14,700                       5.8%                 14.8%
£14,701        -             £18,900                       5.9%                 14.8%
£18,901        -             £31,500                       6.5%                 14.8%
£31,501        -             £42,000                       6.8%                 14.8%
£42,001        -             £78,700                       7.2%                 14.8%
More than                   £78,700                       7.5%                 14.8%

This does not take into account any lump sum payments towards the Pension Fund deficit, which are usually in amounts of several million pounds. See 6 below.

3.    In redundancy situations, large amounts of taxpayers’ money often have to be paid into the pension scheme as part of the package.

 

4.    When council employees are taken on by the private sector eg. when a waste disposal contract is taken over by a private concern, enhanced rights to pension benefits have to be paid for by the contractor (under the Transfer of Undertaking for the Protection of Employees – TUPE regulations). This means that the contract costs the taxpayer more for the term of the contract, but reduces council staff.

 

5.    With people living far longer the liability to pay pensions, that are inflation linked and based on final salary, will eventually lead to taxpayers contributing in excess of 20% of salaries paid to public employees, to public sector schemes. This may lead to an ‘apartheid’ situation between private and public sector pensioners.

 

6.    Over 5 years ago SCC was saying that it would take up to 20 years to ‘make good’ the pension fund deficit of £200 million. They are now quoting the same timescale to recover a £1.2 Billion deficit.

 

It must be remembered that the payment of these Final Salary, Inflation Proof pensions are totally guaranteed and the only people that ‘underwrite’ this guarantee are the taxpayers in England. The schemes, in their present form, are not sustainable and this has been common knowledge for the past 10 years, or more.

 

"Over the past century and a half, life expectancy has steadily increased. However, as people have come to enjoy longer lives, our pension systems have not been adjusted accordingly. In particular, retirement ages and funding assumptions for pensions do not yet fully reflect the impact of longer-lived populations. As a result, state-run social plans, company-sponsored plans and private retirement savings are facing unprecedented challenges." From a major pension company that has done an in depth report on the problems,

An animated presentation that puts across this message in an entertaining and engaging way can be found at the foot of this page. Click 'download' and enjoy.

 

Chris Slyfield - STAG Pension spokesman                         email:chris_slyfield@hotmail.com

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Public sector pensions labelled 'Madoff-style pyramids'

Additional information about the seriousness of the LGPS position has been published by ProfessionalPensions.com

It is so disturbing that we quote from extract here.

If you wish to go straight to the page from which this article was sent, click here: Public sector pensions labelled 'Madoff-style pyramids' 

In a 106-page report for the Centre for Policy Studies, research fellow Michael Johnson said public sector pensions were collapsing under the weight of insufficient contributions, rising longevity and demographic change and had to reform to stop the taxpayer footing the bill.
Johnson said: "Annual cash flow is the primary concern, notably the Treasury's obligation to make good the rapidly increasing annual shortfall between contributions and pensions in payment.
"In 2005-06 this was an immaterial £200m; by 2015-16, it is expected to be more than £10bn, and rising. When added to employer contributions, the taxpayers' share of public sector pension contributions is nearly 80%; this is unreasonably high."
Johnson said compulsory participation in the National Employment Savings Trust for public sector workers and "seeding" unfunded schemes with index-linked gilts would make the system more sustainable.
He also warned of a growing division between private and public sector pensions and said not moving public sector schemes to DC "is to conclude that the quality of pension provision in the (wealth-creating) private sector will, from hereon, be second-class".
Hargreaves Lansdown head of pensions research Tom McPhail said: "Greater transparency of public sector pension provision is overdue. This paper offers some interesting ideas around the use of NEST, career average schemes and the use of 'gilt seeding' to bridge the funding gap.
"Pension reforms should focus on the individual employee and should be designed to put them in control of their own personal retirement provision."
Lord Hutton (pictured) is currently compiling the final report for the Independent Public Service Pensions Commission, which looks at many of the reform options considered by Johnson.
Johnson warned Hutton recommending a form of watered-down DB provision by way of a career average framework would require the government to accept the quality of pension provision in the private sector is to remain second-class.
"Consequently, public opinion may demand a second round of reform a few years later," he said.
 
 
... read the full story at Public sector pensions labelled 'Madoff-style pyramids' 
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