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Government sets out local government pension contribution increase plans

By Richard Johnstone | 7 October 2011

Local government staff will have to pay on average an extra 1.5 percentage points of their pay towards their pensions under changes being proposed by the Department for Communities and Local Government.

PensionsISTOCK
Photo: iStock

The department has announced its plans for changes to the Local Government Pension Scheme as part of the government’s attempts to cut the costs of public sector schemes.

The DCLG proposes to raise £450m from increases in contributions phased in over three years, starting next April. Changes to the accrual rates in the scheme would take place in April 2013, to save the same amount.

Public sector unions are planning to strike over the plans on November 30, and one union official told Public Finance that today’s announcement justified that decision.

Under the plan, no one earning less than £15,000 would pay any extra and those earning up to £21,000 next year will pay a maximum increase of 0.6% of their salary.

According to the figures provided by the DCLG, almost a third of employees in local government earn between £21,001 and £32,400. These people would face contribution increases of 0.7% of pay, then 0.8% and 0.3% over three consecutive years, increasing employee contributions from 6.5% to 8.3%.

High earners will pay progressively more than those in lower salary bands, the department insists, with those earning above £100,000 paying a total of 4.5 percentage points extra over the three years, while those earning above £150,000 would pay an extra 5% in total.

Last year’s Comprehensive Spending Review set out plans for a 3.2 percentage point increase across the public sector. However, the Treasury later announced that the local government scheme, which unlike the others in the public sector is fully funded, would be allowed to examine other ways to make savings including changing the accrual rate.

Under the DCLG’s plans, the accrual rate of pensionable benefits would change from 60ths to 64ths in 2013/14 and to 65ths in 2014/15.

The publication of the DCLG proposals follows negotiations between the government and unions over the contribution increases. These formed part of the recommendations from Lord Hutton’s Public Service Pensions Commission, which reported in March this year.

They were extended to scheme-level negotiations between employers and unions in local government, the NHS, teaching and the civil service this summer. The Local Government Group submitted proposals to the DCLG last month on how to avoid contribution increases in the next two years following these talks.

However, the increases are decided by central government and local Government Minister Bob Neill said the department would now engage with unions and local government employers through a consultation until 6 January 6 2012.

Neill said: ‘Lord Hutton's report sets out why public sector pensions need to be reformed to more fairly protect taxpayers.

‘Today's pension proposals set out a way to save £900m over the next three years that protects low earners from excessive increases - those who earn less will be asked to pay in less than high earners in the scheme.’

The DCLG’s consultation paper also ‘acknowledges that a lower contribution tariff increase but offset by a larger change in accrual rate, or vice versa, could also deliver the required level of savings’, should other proposals come forward as part of the consultation.

However, Brian Strutton, the national secretary for public services at the GMB union, said that the plans ‘majored on contribution increases which everyone had told them would be a disaster for this scheme’.

He told PF that the announcement validated the union’s decision to move towards industrial action.

‘What it shows is that the DCLG have ignored the advice from everyone to stay away from contribution increases. We are not going to allow all this to be put at risk.’

The contribution increases are being consulted upon separately from other changes to public sector pensions recommended by Hutton, which include an increase in the retirement age and a move to career average salary rather than a final salary defined benefit scheme.

Proposed employee contributions (source DCLG)

Salary band   and percentage of membership

Current contributions

Proposed 2012/13 rate

Proposed 2013/14 rate

 

Proposed 2014/15 rate

Up to £12,900 (8.67%)

5.5%

5.5%

5.5%

5.5%

£12,901–£15,100 (10.61%)

5.8%

5.8%

5.8%

5.8%

£15,101–£19,400 (25.20%)

5.9%

5.9%

6.0%

6.0%

£19,401–£21,000 (7.47%)

6.5%

6.7%

7.2%

7.7%

£21,001–£32,400 (31.34%)

6.5%

7.2%

8.0%

8.3%

£32,401–£43,300 (11.16%)

6.8%

7.5%

8.3%

8.7%

£43,301–£60,000 (4.18%)

7.2%

8.2%

8.7%

9.0%

£60,001–£81,100 (0.91%)

7.2%

8.7%

9.2%

10.0%

£81,101– £100,000 (0.25%)

7.5%

9.0%

9.8% (

11.0%

£100,001–£150,000 (0.16%)

7.5%

9.5%

11.0%

12.0%

£150,101 + (0.05%)

7.5%

10.0%

12.0%

12.5%


























 

 



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