The three local government trade unions today (19 January) publish ten key facts about the Local Government Pension Scheme, to set the record straight about a pension scheme with over four million members and £120 billion in assets.
The new LGPS, introduced in April 2008, was agreed by employers, unions and the government after several yearsÕ of talks. All stakeholders agreed the reforms made it sustainable and affordable for the long term.
In exchange for increased member contributions and benefit reform, employers agreed to a scheme requiring councils and other LGPS employers to contribute, on average, 13.6% of membersÕ pay year on year.
The new arrangements have increased income to the scheme from members by 15%. The average employee contribution is now 6.4% – higher than the UK average of 4.9%.
The LGPS is the first pension to introduce higher contribution rates for higher earners, a concept now being proposed by government across the public sector.
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 not be considered 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 wasnÕt for the Local Government Pension Scheme.
The average pension of £4,000 a year – £2,600 for women – does not lead to a gold-plated retirement, but it does mean members have some security in later life.
The local government trade unions believe that the drive to the bottom approach to pension provision, being championed by the Conservative and Liberals, will lead to millions more pensioners suffering and significantly increased pressure on public services.
Heather Wakefield, National Secretary for UNISON, said:
ÒThe cost to the taxpayer of abolishing the LGPS would be high. If our members did not pay into the scheme, the taxpayer would have to foot the bill through state pensions.
ÒThe private sector has shown itself happy to use taxpayersÕ money to cover up its mistakes and poor decisions.
ÒThey should stop talking about what does not concern them and put their own house in order.
ÒOur members Ð almost three quarters of them women Ð work hard to provide public services on low pay and have sensibly decided to contribute to a safe and well-funded scheme.
ÒTwo thirds of them earn less than £18,000 a year, so their pensions are hardly gold plated. The scheme must continue.Ó
Brian Strutton, National Secretary for GMB, said:
ÒLetÕs be clear, the debate about pensions must not be allowed to become a race to the bottom.
ÒThe private sector must stop cheapening their workersÕ pensions, or weÕll have future generations of pension paupers relying on state benefits.
ÒLetÕs also stand up for the LGPS which is affordable and sustainable for the long term to provide future pensions for some of the lowest paid workers around, workers who will fight to protect their pensions.Ó
Peter Allenson, National Officer for Unite, said:
ÒThe LGPS is clearly sustainable given these details brought together for the Trade Unions, who are determined that the myths that some are peddling should be exposed as the scare mongering they clearly are.
ÒThe LGPS is not gold plated, but actually through its investments and benefits bring real value to Local Communities.
ÒEveryone 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.Ó
10 key facts about the LGPS:
1. The LGPS is a funded scheme like private sector defined benefit schemes and unlike the other public sector pension schemes. Together the 101 LGPS funds hold more than £120billion in investments and assets, enough to pay benefits for over 20 years
2. The LGPS has a positive cash flow, with income from investments and contributions exceeding expenditure on benefits by £4-5billion every year
3. Members contribute an average of 6.4% to the scheme with higher earners paying proportionately more
4. The employer contribution rate for current service is 13.6%. In the private sector the comparable employer contribution average is 15.6%. Many employers are paying a high overall contribution to the scheme because of past underfunding and contribution holidays
5. The LGPS is collectively the biggest pension fund in the country and fourth largest in the world making it a major shareholder in business and the UK economy
6. Four million people are members of the LGPS in England & Wales either as active, contributing members, pensioners or deferred members
7. In April 2008 (2009 in Scotland and Northern Ireland) reformed schemes were launched covering all existing and new LGPS members that changed the benefit structure and increased average member contributions to the scheme from 5.8% to 6.4%
8. In the last year income from employee contributions to the scheme has increased by 15%
9. More than 7,000 employers participate in the LGPS, many of which are private sector companies providing local public services
10. Not gold-plated, the average pension in payment from the LGPS is around £4,000 a year, for women the average is £2,600
