Ten top facts on local government pension scheme
19th January 2010
The three local government trade unions today (19 January)
publish ten key facts about the local government pension scheme
(LGPS), 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 years’ 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 per cent of members’
pay year on year.
The new arrangements have increased income to the scheme from
members by 15 per cent. The average employee contribution is now
6.4 per cent - higher than the UK average of 4.9 per cent.
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
per cent 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 £120 billion in assets, a figure
sufficient to pay benefits for more than 20 years, without any
additional contributions being made.
In addition, the LGPS receives £4-5 billion more in income than
it spends in benefits every year, ensuring its enduring
viability.
Even in the current economic climate, the LGPS received nearly
£3 billion 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 LGPS.
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 Liberal Democrats, will lead to millions more
pensioners suffering and significantly increased pressure on public
services.
Heather Wakefield, National Secretary for Unison, said: “The
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.
“The private sector has shown itself happy to use taxpayers’
money to cover up its mistakes and poor decisions.
“They should stop talking about what does not concern them and
put their own house in order.
“Our members – almost three quarters of them women – work hard
to provide public services on low pay and have sensibly decided to
contribute to a safe and well-funded scheme.
“Two thirds of them earn less than £18,000 a year, so their
pensions are hardly gold plated. The scheme must continue.”
Brian Strutton, National Secretary for GMB, said: “Let’s be
clear, the debate about pensions must not be allowed to become a
race to the bottom.
“The private sector must stop cheapening their workers’
pensions, or we’ll have future generations of pension paupers
relying on state benefits.
“Let’s 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.”
Peter Allenson, national officer for Unite, said: “The LGPS is
clearly sustainable given these details brought together for the
trade unions, we are determined that the myths that some are
peddling should be exposed as the scare mongering they clearly
are.
“The LGPS is not gold plated, but actually through its
investments and benefits bring real value to local communities.
“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.”
ENDS
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 £120 billion 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
£4-5 billion every year
3. Members contribute an average of 6.4 per cent to the scheme
with higher earners paying proportionately more
4. The employer contribution rate for current service is 13.6
per cent. In the private sector the comparable employer
contribution average is 15.6 per cent. 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 per cent to 6.4 per
cent
8. In the last year income from employee contributions to the
scheme has increased by 15 per cent
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
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