08 February 2002
Public Finance has been told that initial responses to a Department for Transport, Local Government and the Regions review of the LGPS, launched last September, indicate that a change from a final salary structure to an average salary scheme is on the cards.
Average salary pensions, which calculate final valuations and lump sum payments according to a career-weighted average salary, are cheaper than the current final salary structure, where employer contributions are forced higher to match the salaries of experienced members who are close to retirement.
Members of the LGPS currently pay a contribution rate of 6%, while employers pay 12%, but the government is concerned that the employer contribution is eating up too much of councils' budgets.
Unions and employee representatives would oppose a change from a final salary scheme because payouts would be lower and it would exacerbate local authorities' problems in recruiting and retaining staff. But there is a growing belief that an average salary scheme for new members could prevent the introduction of the much cheaper, and potentially less lucrative, defined contribution (DC) plan favoured by the private sector and some DTLR advisers. The value of DC schemes depends greatly on stock market returns.
A spokeswoman for the DTLR said there were 'no concrete plans' to change the LGPS – which administers pensions for 10% of the population. She added that the review was merely a 'stock-take' to ascertain how the scheme could be changed to reflect modern working practices.
But Mike Woodall, chief pensions officer at the West Midlands Pension Scheme, said he feared that the DTLR had already made up its mind to make the change. 'The very short consultation period made me think that it could be a done deal.'
He added that the DTLR might implement a combination of DC and average salary schemes, as this would discourage new members from opting out in the first two years – a problem that has plagued the LGPS.
PFfeb2002
