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Implementing Hutton report would save local authority schemes £900m, says LPFA

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  • Implementing Hutton report would save local authority schemes £900m, says LPFA

UK - Implementing the Hutton report within the UK's local authority pension schemes by 2013 would achieve the £900m (€1bn) savings targeted by the government but without the need for constant change, the chief executive of the London Pensions Fund Authority (LPFA) has argued. 

Speaking at the Local Government Pension Investment Forum in London, Mike Taylor was joined by numerous schemes in criticising the complexity of reform proposals recently outlined by the Department for Communities & Local Government (DCLG) that aim to achieve savings on par with those proposed for unfunded public sector funds.

Taylor argued that the government seemed determined on "equality of misery" by recommending the equivalent of a 3.2% contribution increase across local government pension funds (LGPS), with GMB national secretary for public services Brian Strutton saying the funded schemes should not be treated the same as pay-as-you-go pension funds elsewhere in the public sector.

Taylor also warned that the changes did not allow for a measure of "intergenerational equity", as the burden of additional costs and lower benefits fell squarely on those still in the workforce, rather than members drawing their pension.

He said opt-outs, widely predicted as a result of increased contributions at a time of wage freezes, would lead to the LGPS system resembling an "exploding pyramid".

"I'm of the opinion that Lord Hutton's report could be implemented by, say, 2013 and produce all the savings the government wants," he told the audience during a panel discussion, referencing the Independent Public Service Pensions Commission chaired by Lord Hutton, which published its final report in March.

Referring to the changes proposed by the DCLG in early October, he added: "We don't need to go through this situation where things change every year for the next three years, until the end of this parliament and then [in 2015] we have a new scheme after that. That's what I'm disappointed about."

He argued that the reforms were a communications "nightmare", as members would see five different schemes listed on their benefits statement over the course of the same five years - with those benefits accrued pre-2008, between 2008 and 2012, as well as one scheme per year as the proposals were implemented.

Hutton, a former secretary at the Department for Work and Pensions, conceded the reforms risked undermining confidence in the system, but said restoring this would be a task for the government and unions.

"Unions are saying this is all terrible," he added, insisting that members of the LGPS would need to be told about the effects and the benefits of remaining an active member.

Hutton acknowledged that the government should be concerned about the possibility of opt-outs as a result of the reforms if only because, if the outcome were a lower level of savings among employees, it would effectively be a "false economy".

Brian Bailey, director of pensions at the £8.5bn West Midlands local authority scheme, added that communication would now be around preventing snap decisions to opt out that members would later regret.

He added that there had been a consensus forming around Lord Hutton's report before the new savings were proposed and criticised that negotiations on how to achieve the £900m cost reduction to local authorities was not worked out prior to the beginning of negotiations.

"If they had started off with a meaningful discussion and creating a cost envelope, then moving to how you would create schemes within that envelope, we would be in a far more constructive situation than we are now," he said.

"But, effectively, the need for short-term cost savings has clouded what was, potentially, a useful discussion."

He said figures recently leaked to the BBC had only served to fuel a degree of rumour and speculation, in turn creating mistrust of the ongoing negotiations.

"What we desperately need is for the mistrust to be removed," he said.

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