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  • Shape of local government scheme in question

UK - Three-quarters of local authority scheme representatives believe the Local Government Pension Scheme (LGPS) will no longer exist in its current form by 2012, Mercer has revealed.

Figures from a survey conducted by the consulting firm at a number of seminars across England, showed that more than half of the attendees thought the 1/60 final salary scheme will become a career-average revalued earnings scheme within the next four years.

However, just 7% of the respondents thought the LGPS would completely switch from a defined benefit (DB) to a defined contribution (DC) scheme.

The seminars, attended by 70 pension managers and finance officers, focused on the future of the LGPS following changes implemented by the government on 1 April 2008, including the introduction of tiered employee contribution rates.

The 'new look' LGPS in England and Wales is designed to be more affordable, and as a result the changes allow for increases or decreases in costs to be shared between employers and members subject to government guidance.

However, local authority schemes appeared to have differing views on what elements of the scheme should be subject to the new cost-sharing system, with just over half suggesting it should apply to benefits and the scheme retirement age.

But 47% claimed only employee contribution adjustments should be made through cost sharing, while 75% argued any volatility in funding resulting from the investment strategy should be the responsibility of the employers and not the members. This figure fell to less than 60% among delegates from the London area.

The survey also found that nearly three-quarters of respondents across all the seminars thought the cost effects of increasing longevity should be shared between members and employers, while two-thirds agreed that the impact of higher earnings inflation on benefits should also be shared.

Although of these 59% favoured changes to the employee contribution rate, the rest preferred benefit adjustments.

In addition, 72% of delegates argued that the impact of changes in ill health retirement costs should not be subject to cost sharing and instead should be the sole responsibility of the employers.
 
The respondents were also split on the issue of introducing an absolute cap on employer contributions, although of the 50% that agreed with a cap, eight-tenths suggested the figure should be higher than the 14% of pay proposed by the government.

Mercer local government consulting unit head Chris Hull said: "Cost sharing will be a vital negotiating area for LGPS over the next few years. Implementing a fair and effective cost-sharing system is a difficult task for any pension scheme. However, it's particularly difficult for a national scheme like LGPS in which thousands of different employers participate."

The changes only refer to the local authority schemes in England and Wales, as Scotland is not implementing changes to its local government system until 2009. [See earlier IPE.com article: Union members accept Scottish LGPS changes]

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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