As if Chelsea losing 4-2 to Manchester City wasn’t bad enough! I was in a stunned and unusually muted queue descending the Matthew Harding lower terraces on Saturday, when a nearby fellow Blue – generally more prone to pies than conversation - managed to punctuate my aura of despair by asking what was happening to his council pension.
Unusual circumstances aside, it was a good enough question to ask at a time when the Tory Party, the Taxpayers’ Alliance, some Liberal Democrats and many others are doing their best to ensure that Local Government Pension Scheme (LGPS) members are deprived of a ‘gold-plated’, final salary retirement. Seminars, conferences, commissions – you name it, they’re organising hard to replace that feather bed with the poor house.
In the face of such hatred and fuzzy-headedness, I thought I might offer a few simple facts about the LGPS to ponder, in case you have doubts of your own. So ponder on, and have some fun constructing arguments for actually keeping the LGPS.
Consider this...
- The LGPS – unlike other ‘pay as you go’ public sector pension schemes – is a funded scheme
- In 2008, the combined value of the assets of the 101 funds was £143bn – yes billion
- That makes it equivalent to around 10% of the UK’s GDP...
- ...Or the fourth largest pension scheme in the world, if you prefer
- 60% of the fund is invested in equities or shares – on the UK or global stock markets
- In 2008, over £1bn was invested in each of the top four FTSE companies...
- £4.7bn was spread across the big four banks – HBOS, Barclays, HSBC and RBS, and...
- £2.3bn was invested in the 49 largest companies delivering public services for councils, the NHS and the utilities
So where does that sort of money come from?
- There are over 7,000 employers who are part of the LGPS
- And 2 million workers who currently pay into the scheme
- They work in local government, the police and fire services, higher and further education, probation, the Environment Agency and some private companies and voluntary sector agencies
- Council workers are the largest single group
- Another 2 million people are already LGPS pensioners or deferred members
- That’s a lot of people
- Active members contribute 6.4% of their earnings every month – on average. Higher earners pay more
- That’s up from an average 5.8% before 2008, when employee contributions increased
- The employer contribution rate for current service is 13.6% – a fairly typical contribution ratio of about one-third employee, two-thirds employer
- Some employers pay a higher contribution because they took pension holidays or reduced contributions during Margaret Thatcher’s reign
- Following reforms in 2008, employee contributions rose by 15% last year, compared to an 8% parallel increase for employers
- Over 50% of the cost of the scheme is derived from employee contributions and investment returns
- And, by the way, only 5% of council tax income goes into the LGPS
But LGPS members still have unfair pension advantages don’t they?
- It depends what you mean
- If you think that £4,000 a year is an enormous average pension, then ‘yes’
- But what about the £2,600 an average woman LGPS pensioner gets? Is that so big?
- You shouldn’t really be surprised at how low LGPS pensions are you know
- Over 60% of local government workers earn less than £18,000 a year
- And 75% of the workforce are women, a quarter of a million of whom earn less than £6.50 an hour
- Many of them contribute to the scheme and save the government money in the process because of pension credits. PCs give a guaranteed level of retirement income for all
- Unison likes them, but they do mean that our members get no more in retirement than they would have done without belonging to the LGPS
- How’s that for social responsibility?
- They could teach a few City types a lesson or two, eh?
Wouldn’t a defined contribution scheme be better?
- Try asking the thousands left without a pension, thanks to the chancy bankers
- Defined contribution schemes are wholly dependent on the state of the market at the point of retirement
- So, HSBC chief executive Michael Geoghegan can give his £4m bonus to charity
- But many prudent savers are now forced to rely on state benefits
- It’s a simple as that
I told my Chelsea mate that anyone who tried to close the LGPS would create more than mayhem on the streets (or at Stamford Bridge). The ripples would be felt throughout the Stock Market and the global economy, and the government deficit would keep on growing to pay those 4 million LGPS pensions.
I said I was quietly optimistic. Come on Chelsea!
Heather Wakefield is head of Unison’s local government service group
