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Our pensions are under threat including the local government scheme - and many people face a retirement blighted by poverty. Laurence Pollock examines what unions are doing to combat this disturbing trend
Is your pension worth it?
The UK is one of the world’s biggest economies with a comfortable standard of living by global standards.
But ensuring that our pensioners who have already given a working life share this, is a mounting human and economic problem. Those on the basic state pension have only recently seen rises in excess of price increases - they have not seen pensions raised in line with earnings since 1981.
In the early 1990s there were further blows. Urged on by the Tory government, cowboy advisors persuaded hundreds of thousands of people to take out private pensions that were subsequently found to be worthless. Many had voluntarily left secure occupational schemes.
Others, such as contracted out former council workers, were forced to fend for themselves in shark infested seas. Some, in company schemes, fell prey to rapacious directors who plundered funds for their own enrichment Robert Maxwell was the worst example.
The gold standard, nevertheless, was an occupational scheme with employer contributions, based on final salary. Today even these are under threat. Many companies are closing them to new entrants who are offered an inferior ‘money purchase’ stakeholder pension. The trend developed in the private sector but now, alarmingly, there is growing interest in the cash strapped public sector as well.
Questions raised include whether the benefits of public service pensions are ‘too generous’. Additional factors include the stock market problems combined with low interest rates and the fact that people are living longer. The difficulties of Equitable Life have added to the general anxiety factor
The government’s consultation (stocktake) on the future of local government pension scheme, therefore, is of vital importance to millions of council staff and UNISON members in England and Wales.
The second phase of the consultation was launched in September by the pensions division of the Office of the Deputy Prime Minister (ODPM formerly the Department of Transport, Local Government and the Regions). It acknowledges the positive such as statutory protection; benefits based on final salary and a link to prices. But the ODPM is asking if the structure is the best for both present and future employees.
The first phase of the stock began in July last year and its focus included the efficiency of the regulatory framework, its relevance to current pension policy and workforce issues and its ability to deliver into the future.
The main findings in May this year were mainly positive the ODPM concluded that none of the issues raised were ‘impacting to create any serious defect in the scheme as a whole.’ But it proposed that a series of topic papers should be developed on how to deal with particular topics raised in the first round.
For instance one discussion paper looks a range of issues including changes to ill health retirement, how to encourage longer active service, and the advantages of allowing lower employee contributions for new starters with lower levels of benefits. Other issues deal with discretionary benefits, ‘stepped pension plans’, ‘salary averaging’ arrangements and mandatory annual benefits. Comments are invited on the paper by February 2003.
Launching the discussion papers, the ODPM issued a letter in September stating that ‘while the LGPS provides a reasonable pension package for full-time career local government employees, it is increasingly unsuited to the modernisation trends of local government in terms of new workforce and employment characteristics.
‘The current arrangements for existing Scheme members are not affected in any way by this exercise but it is right to debate how best to forge some new, flexible and attractive proposals which could form the basis of a new benefit package, primarily for the future staff of local authorities and one which local authority employers will support.’
Glyn Jenkins, UNISON’s pensions officer, says it is likely the LGPS will be under significant pressure to change for new employees within the next few years in view of the developments in the Civil Service and the introduction of new civil service pension scheme last month (Oct).
“The good news is that a defined contribution scheme is not on the agenda and there are no plans to change the benefits for existing members, although the consultation will take in over discussion in area such as ill health retirement and partners’ pensions.
“The bad news is that we will be under pressure to consider a new pension scheme for new employees sometime in the future which is likely to have a higher employee contributions and perhaps a career average as opposed to a final salary benefit structure.”
Contact the article's author Laurence Pollock
THE LOCAL GOVERNMENT PENSION SCHEMEEmployers’ contribution rates to many LGPS Funds have been rising. Factors include reducing investment returns, early retirements, the longevity of scheme members and the removal, in 1997, of Advanced Corporation Tax credits. Between 1990 and 1993 the 75 per cent funding regime in force meant some funds paid much reduced or zero contributions. In addition, there are fewer ‘active members’ and more ‘pensioner members’ made worse by staff being outsourced to contractors and not kept in the LGPS. The workforce has also changed since the beginnings of the LGPS with many more part-time employees, some with multiple employments and the majority female. The scheme is a ‘gold standard’ offering one eightieth of final salary for every year worked plus a lump sum of three eightieths of final salary. About 100 authorities administer the scheme in England Wales and some have low valuations on their funds locally. Attempts to replenish the funds locally will have an effect on local government finances. Local government in England and Wales employs 2.1 million employees, around eight per cent of the workforce in England and Wales. There are 2.8 million people in the LGPS (active members, deferred members and pensioner members). The fact that many will have a spouse and/or dependent children means that the LGPS potentially impacts on about 10 per cent of the population. Local government as a major employer, must offer remuneration packages, including pensions, that are conducive to attracting and retaining staff in order to deliver high quality, effective services. The sector also has a responsibility for preparing a community strategy for promoting or improving the economic, social or environmental well being of the local population and for ensuring that older people are enabled to live as independent lives as possible. |
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