08 October 2004
Lower-paid council staff are likely to benefit from changes in proposals to overhaul the Local Government Pension Scheme published this week, at the expense of higher salaried managers.
Phil Hope, the minister responsible, described the proposals as 'the most radical overhaul of the LGPS since its inception'.
Employee contributions to the retirement scheme are set to rise after 2008, with staff likely to pay an average of 7% of income into their funds to make the scheme more affordable for councils. That equates to an increase of around 1%.
But the introduction of a sliding scale for contributions means that part-time staff earning £5,000 per year or less, for example, could be asked to provide as little as 2.5% of their salary. Senior executives could face payments of 10%.
The aim is to attract more younger and lower-paid staff into the scheme.
Total costs to councils are expected to reach 21%, meaning the employers' contribution will remain broadly stable, at around 14%, including the use of investment income.
Other possible changes to the £80bn retirement plan, outlined in an Office of the Deputy Prime Minister consultation paper on October 4, include opportunities for a phased transition between work and retirement for the scheme's 3.1 million members.
Hope said: 'People are living longer and there is a need to deal with the changing ratio of economically active people to those in retirement. Our agenda seeks to meet these challenges by encouraging people to work longer, and to provide an attractive and accessible pension framework.'
Reaction has been mixed. Sources at the Employers' Organisation said they were 'delighted' that council contribution rates could be unaffected.
Peter Scales, chief executive of the London Pensions Fund Authority, said: 'These are radical but necessary proposals. Allowing staff to phase in retirement is an excellent move – one that could provide years of extra contributions from key staff.'
But trade unions are less happy. Glyn Jenkins, Unison's pensions spokesman, told Public Finance: 'The sliding scale is welcome because it ties contribution rates to ability to pay. But, using the ODPM's figures, it seems likely that only staff earning below £7,000 per year would contribute less than they do now.'
Unison claims the lacklustre performance of many LGPS funds is down to poor investments and contribution 'holidays' taken by councils.
PFoct2004
