Ministerial Response on the Local Government Pension Scheme

I have been lobbying Ministers on behalf of constiutuents concerned about the LGPS Scheme. Please find below the most recent response from Ministers:

The Local Government Pension Scheme (LGPS) differs from the other public sector pension schemes because:

- It is a funded scheme;

- The Secretary of State has a regulatory obligation to ensure that it remains sustainable in the long-term;

- It has always had a retirement age of 65 since it was first set up in the 1920’s.

There are 89 separate funds within the Scheme, each one run and administered locally.

As it is a funded Scheme, each fund has to demonstrate how it will best meet its liabilities over the long-term – at an acceptable cost to Scheme members, the local authority employers and to council tax payers.

Each fund is valued every three years. The last full valuation carried out, in March 2004, showed that overall the Scheme held assets of some £84 billion against liabilities of £114 billion.

Ensuring the LGPS remains a final salary pension scheme, guaranteed by statute

In 2004 the government proposed that the best way to ensure the continued sustainability of the Scheme and to ensure it remains a final salary Scheme guaranteed by statute was to:

1. increase the earliest age at which a pension can be paid, other than on grounds of ill health, from 50 to 55;

2. a phasing out of the Scheme of the so called ‘85 Year Rule’ – put simply, this means that when a persons age plus years of service equals 85 they are able to seek early retirement (before 65) from their employer.

3. Reduce the pressure on local authorities by £200 million through regulations staging costs;

These studies, involving all stakeholders, have also had to take into account recent legal advice that the 85 Year Rule is discriminatory and has to be removed by October 2006 at the latest in order to comply with EU related employment equality legislation.

So as to implement changes 1 and 2 above (increase from 50 to 55 and removal of the 85 Year Rule) in late 2004 the government laid an Order in Parliament (the LGPS (Amendment) (No.2) Regulations 2004).

This Order, along with the £200 million reduction, helped to manage the cost pressures as identified in the March 2004 valuation.

These changes were part of a wider discussion with stakeholders on proposals for the longer-term, with the intention to implement a new look LGPS by April 2008. These wider discussions included looking at:

- lower contributions from lower paid workers (many of whom are women) and higher contributions from the highest earners;

improved accrual rate;

- improved death cover and extended ill health retirement benefits.

Revocation of the 2005 Order and setting up the Tri-partite Committee

After listening to concerns raised and following discussion with all stakeholders the Deputy Prime Minister announced, on 18th March, his intention to consult on the revocation of the Order with retrospective effect from 1st April 2005.

He also announced the creation of a Tripartite Committee, that he would Chair, that would consider how best to ensure that the Scheme can be retained as a final salary pension scheme, guaranteed by statute.

It was agreed that this Committee would include all the key stakeholders (ie. the trade unions and employers) who will consider and negotiate the long-term future of the Local Government Pension Scheme.

Following consultation on the intention to revoke the Order, on 13th July 2005 the Local Government Minister, Phil Woolas MP, made a statement in the House that the Order was to be revoked with retrospective effect from 1 April 2005.

In that Statement Phil Woolas made clear that in order to ensure the on-going solvency of the Scheme, Ministers’ were committed to introducing further regulations to come into effect from April 2006 to fully meet the costs arising from the decision to revoke.

Further Developments

Since the creation of the Tripartite Committee, it has met three times to discuss how to retain the Scheme as a final salary scheme guaranteed by Statute.

At the second Tripartite Committee held on 30 June it was agreed that the stakeholders should prepare a costed assessment of the decision to re-establish the 85 year rule provision by the autumn.

In addition to these Tripartite meetings, several further meetings have been held between ODPM, trade union and LGA officials and a number of actuaries over the summer and into September and October.

To ensure the best possible basis for the cost-assessment exercise to be completed by the employers and unions, several initiatives have been underway throughout the summer:

- An independent actuarial study of the LGPS demographics has been completed and released to stakeholders;

- Actuarial updates of the LGPS funds position as at 31 March 2005 to establish the cost pressures of revoking the 85 Year Rule with effect from 1 April 2005 have been received from most LGPS funds;

- The 2004 valuation reports have been supplied to actuaries advising the unions;

- The LGA has undertaken a data collection exercise of each pension funds’ membership characteristics and this has been released to the unions for assessment.

The information provided by LGPS funds showed that the total cost pressure for the Scheme arising from the revocation of the Order was in a range from £360 to £450 million, of which some 80 per cent falls to local authorities.

In addition to these talks it has been made clear to stakeholders that there is a need to continue wider talks about the longer-term reforms.

At each meeting of the Tripartite Committee it has been made clear to all stakeholders that the Secretary of State has a statutory duty to ensure that the Scheme remains viable and solvent in the longer-term.

A meeting of the Tripartite Committee is scheduled to be held in early November, where it will be necessary to conclude matters surrounding the costs of the revocation.