By Lucy Phillips
25 March 2011
Concern that there will be a mass opt-out from the Local Government Pension Scheme has been reignited after the chancellor said in his Budget that he would go ahead with increasing public sector employee contributions by an average of 3%.
Baroness Margaret Eaton, chair of the Local Government Association, said George Osborne failed to recognise that the LGPS was funded, unlike other schemes in the public sector, and currently in surplus.
She warned that the increase would hit workers hard. ‘It is likely that the LGPS opt-out rate will rise as a result. We would seriously counsel against pushing ahead with plans which might undermine the future viability of a highly effective scheme which helps its 4.3 million members save towards a reasonable retirement and reduces reliance on state means-tested benefits.’
Osborne said the case for increasing employee contributions across the board had been reinforced by the results of a public consultation on discount rates for unfunded public sector pension schemes ‘which shows that a more appropriate rate would be inflation plus GDP growth’.
The National Association of Pension Funds also warned about how and when contributions would rise. Chief executive Joanne Segars said: ‘If opt-outs are high, the government might not generate as much money as they expect.’
But the association welcomed the chancellor's acceptance of Lord Hutton’s proposals from his independent pension review as a basis for consultation.
