Councils wont lose out if pension reforms reversed

2 Jun 05
The government has pledged to help councils manage extra costs incurred by a decision to reverse reforms to the local government pension scheme, Public Finance has learned.

03 June 2005

The government has pledged to help councils manage extra costs incurred by a decision to reverse reforms to the local government pension scheme, Public Finance has learned. 

The promise was secured by Local Government Association chair Sir Sandy Bruce-Lockhart at a meeting of government, unions and employers on May 24, convened to agree a way forward on the troubled issue.

The LGA has adamantly opposed the postponement of the reforms, which came into effect on April 1 but were suspended pre-election in response to union threats of action.

A letter from Bruce-Lockhart to Deputy Prime Minister John Prescott, seen by PF, states: 'I was grateful for your assurance that if revocation does take place, you would need to take action in the autumn, effective from April 1, 2006, to restore the finances of the scheme to the overall position they would have been in if the regulations had been left in place, without cost to the employers.'

The letter, dispatched on May 31, accompanied the LGA's formal response to the Office of the Deputy Prime Minister's consultation on scrapping the reforms.

The changes under threat include an increase in the pension age from 60 to 65 as well as removal of the '85-year rule', which facilitated early access to pensions for council workers. It is estimated that revocation would cost councils £200m a year.

What form Prescott's help will take is yet to emerge but the LGA is calling for the government to make up the lost savings itself. Another option is to increase employees' contribution rates.

However, an ODPM spokeswoman ruled out the prospect of a financial rescue package from Whitehall. 'There certainly isn't going to be extra money from the central government side,' she told PF. She added that all parties needed to work towards the long-term sustainability of the pension fund.

In its response to the ODPM's consultation, the LGA said the rationale for a higher pension age was 'inescapable'.

'The fact that scheme members are living longer is to be celebrated, but it also means that they are receiving their pensions for longer, which costs money. If members are going to draw their pension for longer, they either need to pay more, receive a lower pension [but paid over a longer period of retirement], or work longer,' the response stated.

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