UK - Unions have warned of the "massive" impact of reforms to the UK's local government pension schemes (LGPS), cautioning that the combined impact of opt outs and lower levels of employment in the public sector could lead to a 20% reduction in active membership.
Speaking at a conference organised by the London Pensions Fund Authority (LPFA) to launch its Green Paper on scheme reform, the GMB union's national secretary for public services Brian Strutton warned the reduction in membership could lead to schemes becoming cash-flow negative within as few as five years.
Strutton - who is currently part of a union team involved in talks with employer representatives on how to deliver the proposed £900m (€1bn) savings demanded by the Treasury - spoke of the "major risk" of reforms.
He warned of the danger of further changing the value of scheme benefits at a time when public sector job cuts and pay freezes meant numerous employees were opting out of schemes, predicting it would approach 20% of active members.
He said: "If that happens while investment returns are as low as they seem to be, then if we make one further set of changes to reduce the cost of employers by the equivalent of 3.2% - which is what we're being asked to do by central government - that massively impacts on the LGPS cash flow."
Strutton said he was "mindful" of the delicate balance in place in such schemes and warned that a cash-flow negative environment would have "all sorts of implications" on investment strategies.
An actuarial study commissioned by union Unison recently predicted that significant opt outs would only serve to accelerate maturing within the defined benefit schemes, meaning the funds would be forced to pursue a more risk-averse strategy, thereby shifting focus away from equities and other growth assets.
Strutton said the current reform proposals, originating to some degree from the previous Labour government, were being "carried through rather more forcefully" by the coalition led by prime minister David Cameron.
Strutton said the local government unions believed short-term cost-saving measures were "inextricably linked" to any structural reforms needed in the LGPS sector and that they should therefore be dealt with at the same time, in a consistent fashion.
"We are very concerned that, by breaking those component parts away from each other, we could be leading to outcomes that are not in the long-term interest of this scheme," he said.
Despite this criticism, he said he saw no reason why both objectives could not be addressed ahead of the government's timetable for reform, with all changes implemented by next year, avoiding any need for further reform.
Referring to the previous report into the state of public sector pensions - both unfunded schemes, as well as the funded branch represented by LGPS - he said: "We can take account of what things need to be done to resolve the Hutton recommendations and build all of that in one piece next year - that is the position the LGPS trade unions come from."
He argued that a number of recent changes to the local government landscape were already poised to deliver significant cost-savings in the next few years, referencing both the pay freeze in local government - meaning employer contribution rates will not rise with inflation - as well as the switch from the retail price index to the consumer price index as a measure of inflation.
Strutton stressed the changes would have "very, very significant impacts" on the long-term liabilities of the LGPS, as well the other unfunded schemes in the public sector.
"Uniquely in this scheme, those long-term savings can be built into the short-term contribution requirements employers have to make to the scheme, and our calculations show that, starting this year and mounting over the next two years, employers across the LGPS can be looking at in excess of £2bn per annum, consistent, ongoing savings coming into the LGPS," he said.
The union leader warned that a failure to reach agreement between the government and employee representatives could lead to further strikes over changes to the unfunded schemes - following on from industrial action this summer - and while LGPS concerns needed to be seen as separate issues, its members could still be part of any strike.