The concept of "gold plated" pensions has become a staple for UK newspaper coverage of the public sector. It's easy to see why, when corporate pensions are in turmoil and millions of private sector workers are faced with the closure of their defined benefit pension schemes and the growth of defined contribution alternatives that shift the onus of retirement saving from the employer to the employee.
But as Anthony Hilton of the London Evening Standard has pointed out, we should be wary of falling into the trap of leveling down valued and sustainable local authority pensions to an inadequate level, leaving thousands of council workers dependent on the state for means-tested top ups to an inadequate employer-provided pension.
The fact is that the Local Government Pension Scheme (LGPS) has a strong cash flow for the foreseeable future, and provides useful (though hardly "gold-plated") pensions averaging £4,000 a year to hundreds of thousands of retired local authority workers. Equally importantly, unlike most other public sector pensions, the LGPS is funded by contributions both from employees and employers. It is, in many ways, a good example of what can be achieved through sensible sharing of the pension "risk" between workers and employers.
But there is no room for complacency, and this success will not survive without reform. Currently, reform of the LGPS lies in the hands of the Department for Communities and Local Government, and central government does not have a strong track record when it comes to pensions reform. Well-intentioned, no doubt, but effective? Hardly.
Instead, a popular idea that emerges from a recent Punter Southall survey, as well as from a broad range of other pensions commentators, including Joanne Segars of the National Association of Pension Funds, is to take politics out of pensions. If the pensions industry craves one thing, it is a stable long-term regulatory environment in which to get its act together. Politicians who win power have a range of priorities, but by far the most important is to get re-elected within the next five years. As we all know, even a week is a long time in politics, but five years is barely a blink of the eye in the glacial world of pensions.
Given this asymmetry between the time horizons of the pensions industry and the ministers whose decisions shape it, or mis-shape it, perhaps the Pensions Commission might serve as a useful template for the way forward. Chaired by Lord Turner, the Commission's 2005 analysis and recommendations report achieved the unusual feat of attracting support from across the pensions community and, broadly speaking, across the political spectrum.
So it can be done. The London Pensions Fund Authority's new Green Paper sets out our thoughts on how to strengthen the LGPS, using a newly-created independent commission to maintain the scheme as a vehicle for providing valued retirement income for local authority staff, while facing up to the pressures of future funding. We would welcome comments and suggestions on these proposals.
Mike Taylor is the chief executive of the London Pensions Fund Authority
