Wednesday, January 20, 2010

LGPS Pension matters 2


More good stuff about the sustainability of the Local Government Pension Scheme (LGPS and all well run Final Salary schemes) from various sources.

(Picture is of UNISON LGPS pension reps)

The current LGPS is not the cause of increases in Council Tax or cuts in local services. In fact money equivalent to less than 6% of Council Tax revenue goes towards the LGPS, about £70.50 a year for an average Council Tax paying household in England. The numbers being peddled by those opposed to quality pension provision in the UK are dangerously misleading for a debate that should be considered not a forum for shallow point scoring.

Of that contribution it is the funding owed for past service that is often the greater part. Past underfunding by employers has meant that insufficient funds have been put aside for future pensioners. However, as a funded scheme, unlike the others in the public sector, the LGPS has over £120bn in assets, a figure sufficient to pay benefits for more than 20 years without any additional contributions being made. In addition the LGPS receives £4-5bn more in income than it spends in benefits every year, ensuring its enduring viability.

Even in the current economic climate the LGPS received nearly £3bn in income from its investments in 2008-9. The scheme is a major shareholder in British businesses, property and regeneration. This is on top of the contribution it makes to the income of more than one million current pensioners many of whom would be entirely reliant on taxpayer financed state benefits if it wasn’t for the Local Government Pension Scheme.

The local government trade unions believe that the drive to the bottom approach to pension provision being led by the Conservative and Liberals will lead to millions more pensioners suffering and significantly increased pressure on public services.

Everyone should bear in mind that the scheme was reformed in 2008 with some benefit changes and increases for employees in their contributions with the Government and employers being party to the new scheme.”

Also UNISONactive quotes Labour Minister John Healey who said in May 2009 that a defined contribution scheme would result in the average pension for a local Government worker reducing from it’s current £4,000 to about £1,000. While this “Big improvement in values of funded pension schemesBBC report was for some reason not on the front page of the Torygraph or Daily Hate.

Hat-tip thingy of course to Tom P at Labour & Capital who has recently pointed out (here) that the elephant in the room over final salary pensions is longevity. In the LGPS we have now agreed to talk with employers about fluctuations in the cost of future service.  The biggest challenge is making up for inadequate contributions made in the past by employers.  If the LGPS was replaced then past liabilities will still have to be paid for - So what is the problem?

I would also add that if we got rid of LGPS you would have to replace it with something else which would have to provide a pension and this could even cost more!

That poor governance practices in the LGPS by certain Councils who have run it as a private dining club has contributed massively to poorer investment returns which has dragged down its overall results.

It is madness that there are so many “tiny” LGPS funds who all tender for, appoint and then employ individual private fund managers and individual advisors. We should rationalise the LGPS into a much smaller number of large, well resourced funds who will employ in-house fund managers who would slash costs and improve performance. The most successful big LGPS funds already do this.

The Witch-Hunter General - Trot of the Rogers has recently pinched my long running argument that the LGPS could actually be extended to all employers and employees. Arguably you don’t need a change in the admission rules since membership could be allowed to any employer who provides services that a local authority “has or could provide”. Which I understand now is pretty much everything. The self-employed (White van person) who are most concerned about their lack of provision and the “trustworthiness” of ill-health and pensions on offer could even benefit the most?

The UNISON website here makes many of the same arguments as the GMB but its “myth busters” argument also adds that “Over 50% of the cost (of the LGPS) is met by employee contributions and investment returns”.

While UNISONactive have commented on the success of UNISON in forcing the government to stop councils using LGPS money to lend to themselves at super cheap rates. This alone cost the LGPS at least £131 million last year alone.

Rant over...for now. Watch this space.  Hat-tip Tom P

Update: been pulled about about unions "agreeing" to longlevity review.  There is an agreement for possible further discussions if it becomes an issue in the future.

6 comments:

Anonymous said...

good to have an update on this but... out of the M 7 only two survived and the rest died heroically -hope that is not indicative of unions? Oh all men btw altho did not check the horses!Kat

John Gray said...

Hi Kat

These stats could explain why we find it hard to recruit LGPS pension reps!

You are right about them being all men. Disgraceful. Get your JR to make (yet another) offical complaint about the lack of Proportionality in the M7.

Anonymous said...

Very Dallas m'dear!maybe the horses are fillies -after all who else does all the work?K

John Gray said...

Hi Kat

True - what do you think of the lone GMB rep?

Jon Rogers said...

John,

Hi

Send me a link and I'll post you a retrospective hat tip. I am as happy to give credit where it's due as criticism where I think it's needed.

Let me know if you're working on wording for a Conference motion and we could put the same wording to each of our branches.

Our Branch AGM approved the concept unanimously and its a good idea even if we both agree about it.

Jon

John Gray said...

Hi Jon
Thank you for the kind offer. This meeting of minds had obviously shaken my core belief in extending the LGPS - but I have now recovered.

I am sure we can also agree with General Booth that “why should the devil have all the best tunes”.

It is good to know that you support the idea of extending funded pension schemes and I assume “New Capitalism”?