That is one sinister looking pig!

So, another week, another threat of strikes and another attack on local government pensions.

If anything concerns me about the whole debate it is the ridiculous language used by people on each side of the debate. The tendency of people from the Government to slip into the tired language of: ‘generous’ public sector pensions is as dangerous as the hyperbole of those from the Union side who claim the Government plan another ‘pension raid’.

Before I get caught up in a ‘pox on both your houses’ rant here is the most important local government pension stat courtesy of the Hutton report into pensions:

Average local government pensions are £4,000 for men, £2,800 for women.

Now, this amount may possibly be higher than if those same individuals were working in different jobs and receiving private sector pensions or purchasing their own pensions on the open market.

However, we need to get away from calling this a ‘generous’ pension.

And, it certainly isn’t ‘gold plated’ (except for those at the very top of the organisation maybe and that’s for another day).

Despite this, for a pension scheme to be sustainable in the long term it needs to be funded well enough so that the benefits we all rely on are available when we retire.

The local government pension scheme is, in theory, a fully funded final salary pension scheme. The concept behind this is that there is enough money put aside each year that when you eventually come to retire the ‘pot’ will have grown enough that the final payment you are due each year will be available.

This means huge contributions for the local authority, fairly substantial contributions for the staff and a lot of work for actuaries!

Which is why I get a bit grumpy at the way this is all being treated. I am not a pensions expert but as I understand it there is general agreement that a fully funded final salary scheme is the way to go in local government. At the moment (thanks to Ruth Keeling and others) we also know that there is currently a hole in these funds that needs to be filled. If we agree on this then all we are arguing about (politely debating) is how this hole can be filled.

We could:

1)    Increase employer contributions

2)    Increase employee contributions

3)    Reduce benefits (by reducing the accrual rate)

4)    Ask people to retire later

5)    A combination of the above

The unions might argue that at the moment local authorities should be working extra hard to ensure that they cover pension shortfalls due to the increased crunch on salaries. Local authorities might argue that a later retirement age is the fairest response to shifting demographics and politicians might point out that reducing benefits slightly might allow the maintenance of the scheme for all.

I’m not sure what is best but if we all have the same aim in mind (we seem to) then maybe we could have a slightly more rational debate about how we’re going to get there.

Pensions are way too important for all this bluster to end up discouraging people from taking one out.

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8 Comments on “Pensions”

  1. Performance Says:

    A lovely, well balanced post! Personally, I think the only ‘fair’ response is 5)A combination of all of the above.

    And I honestly can’t see (though as a relatively young worker I accept others may have a slightly different perspective) why the retirement age shouldn’t be the state retirement age? I mean, we work for the state…

  2. Rob Cope Says:

    Bear in mind the LGPS is a national scheme but each local authority ‘pot’ is individually administered. Hence there is no national ‘hole’ – some schemes claim to face no problem, others seem to be in trouble. So we need a lot more detail about the actual state of each pot before we fall for the sort of panicky cuts HMG clearly wants to push through. Surely moves towards genuine national administration (and possibly merging the pots, though that’s a real hot potato) would yield useful cost reduction? And before I pay more, I’d like to know the impact of employer contributions ‘holidays’ in the past!

    • That’s a good point about the variations in the value of each local pot… Maybe we should try and persuade the Unions to go for locally negotiated contribution rates but with the same agreed outcome (final salaries based on average salary for example)…

      But on the issue of employer contribution holidays I disagree… We need to deal with the state of the central fund(s) now as opposed to fighting the battles of the past…

  3. Pete McClymont Says:

    I suppose I ought to read Hutton, but one thought that’s been running through my mind is teasing out more with regard to retirement age. After all, the law is changing (has been changed?) so that you cannot be forced to retire at 65 or whatever.

    If it works that way, why not look at more flexibility in the retirement age generally? I’m not suggesting that you should get full benefits either from an occupational or state pension if you go “early”. But, it would be nice to have greater choice beyond say aged 60 without a punative reduction in benefits. (Especially for those of us in their mid to late 50s!)

    Effectively, additional contributions amount to additional tax. In general, I’m willing to pay higher tax if I can see benefits for the whole of society. I’m not willing to do so to plug a hole created by a small number of unaccountable people.

    Coming at the same time as what appears to be an indefinite pay freeze and extortionate increases in fuel and basic living expenses, additional contributions are not only unwelcome, but unaffordable.

  4. I agree there is a lot of debate to be had about the long term sustainability of public sector pensions given the expected increased longevity of many of its members.

    However, what is currently making me very angry is the fact that we are about to have to pay an extra 50% contribution into our pension scheme that is not actually going to go into our pension funds but will be used to pay of the ‘deficit’.

    This is purely and simply a tax on having a public sector pension not dissimilar in nature to the window tax (1695 – 1851) if you got one you pay tax if you haven’t you don’t. How does this encourage anyone to make provision for their old age?

  5. Jeremiah Says:

    Actually I think you’re wrong to say there’s general agreement on a final salary scheme. There seem to be plenty of advocates of a career average instead of final salary, and personally I think that’s probably a good idea in principle – because it’s only the high flyers whose final salary is likely to be way above their career average, and we probably do need to limit the cost of their pensions to be fair to everyone else.

    But are the current proposals really about filling a funding hole, or saving the employers money? If the employer contributions are reduced and employee contributions correspondingly increased, that’s simply a pay cut – albeit slightly less obvious than cutting the headline salary figure.

  6. […] aren’t so different. This followed up a piece from the week before discussing the future of the local government pension scheme. In that post my fellow WLLGer had written that there was general agreement that local government […]

  7. […] written about the Local Government Pension Scheme for a while but since we last took a stab at joining the intelligent debate about it the Government and the Unions have been doing their best to do the opposite and thwart intelligent […]

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