30 June 2006
Disagreement between local authorities over employee benefits in the local government pension scheme risks fragmenting and ultimately undermining the sustainability of the entire scheme, unions have told Public Finance.
The Department for Communities and Local Government will next week launch its formal consultation on a 'new-look' LGPS. Options for a career average scheme as well as an amended final salary and hybrid scheme are likely to be formally laid on the table. But as individual funds face different funding constraints, employers and unions agree that local authorities will be divided over which options they favour.
'There'll be a North/South divide in what the authorities go for; as well as a Scotland/England split,' said Brian Sutton, national secretary at the GMB union. 'Some of those authorities that think their funds are loaded with cash might want to consider offering enhanced benefits in the future.'
If individual better-funded schemes – which are mainly concentrated in the North – did choose to break away from deficit-ridden funds in the South and offer higher employer contribution rates or benefit accruals, the sustainability of the LGPS might be undermined, said Heather Wakefield, head of local government at Unison.
'At the moment, the badly managed underfunded schemes benefit from effective redistribution from the better-funded schemes. If those schemes break away, it'll fragment the entire scheme and leave it more vulnerable. Its sustainability will be thrown into question.'
Whilst unions favour keeping the current final salary scheme with enhanced benefits for members, the Local Government Association wants the new scheme to provide cost savings for employers.
But a senior local government source told PF that authorities had not even been able to agree over the recent reforms to the current LGPS in which the '85-year rule' enabling long-serving members to retire at 60 with unreduced benefits was scrapped.
Mike Woodall, chief pensions officer West Midlands Pension Fund, said he agreed. 'No one really had a problem with the 85-year rule,' he told PF. Regulations introduced in 2001 allowed schemes to consider early retirements against the viability of their schemes and so 'we'd dealt with the issue by the time the regulations came 'round,' he said.
A number of authorities in the North East had disagreed with the LGA's position that the rule was unaffordable, said the source, and were now 'actively considering how they might give members additional benefits, to mitigate the effects of removing the rule… as a part of a new-look scheme.'
Greater Manchester, Merseyside and West Yorkshire pension funds are also thought to be currently considering offering enhanced benefits to their members.
The Convention of Scottish Local Authorities is already on the record as disagreeing with the LGA's position on the 85-year rule and Joe Di Paola, Scottish organiser for Unison, said: 'We'd like to think we'll be in a better position in Scotland to negotiate better benefits for our members in any new-look scheme.'
Asked if the DCLG would permit different funds to settle for different schemes, a department spokesman said: 'LGPS funds and employers are subject to national regulations in England and Wales. DCLG are open to suggestions from Scheme interests for extensions to the existing discretions available to scheme employers, within the context of the development of a new-look scheme for 2008'.
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