01 April 2005
Government proposals to revoke this week's overhaul of council pensions could be vetoed by town hall employers, Public Finance has discovered.
Changes to the Local Government Pension Scheme came into force on April 1 and include an increased pension age of 65 for council staff. The Office of the Deputy Prime Minister agreed to revoke them two weeks ago to prevent a strike by local government unions – if both unions and council leaders could agree.
But local government employers are unhappy about this U-turn. They have told Public Finance that they are unlikely to support withdrawal of the new regime unless the government can produce an alternative system that also eases costs.
A senior council figure told PF that town halls would accept changes only if the alternative 'covered the vital savings that the April 1 changes introduced'.
ODPM sources this week acknowledged that it would be difficult to convince councils to revoke the changes. A spokeswoman admitted: 'Failure to get a tripartite agreement could mean the new system remains in place.'
The changes would reduce spiralling pension payments by around 2% of local authorities' payroll costs. Pensions account for around 13% of council payrolls and total UK liabilities have reached £30bn.
Deputy Prime Minister John Prescott said he needed the agreement of ministers, unions and town halls to revoke the changes and has no plans to force councils to accept a withdrawal.
The ODPM will host tripartite discussions with the Local Government Association – through its Employers' Organisation – and unions. But those talks could be delayed if an election is called soon.
Unions are confident they can negotiate a withdrawal, and claim staff were not adequately consulted over the pension age change. But Prescott will want to avoid accusations of caving in to union demands before further public sector pension reforms next year.
One alternative likely to be discussed is higher staff contribution rates to make up any shortfalls caused by a revocation.
Amid uncertainty, the new regime 'went live' this week. Fund administrators have factored longer staff payment periods into financial estimates and the actuarial consultant Mercer has estimated that withdrawing the regime would cost £200m annually.
Mike Woodall, chief pensions officer at the West Midlands Pension Fund, said: 'What is important is that the regulations that emerge from these new talks ensure that the LGPS is sustainable in the long term. It would be a Pyrrhic victory for trade unions if, ultimately, it became unsustainable.'
PFapr2005
