LGPS Facing the Future Briefing No 107

Introduction

This briefing outlines the proposals by the Scottish Public Pensions Agency (SPPA) on the development of new pension arrangements for local government in Scotland. This consultation paper – Facing the Future: Propositions and Principles for an Affordable and Sustainable Local Government Pension Scheme in Scotland – aims to introduce a number of changes to the existing LGPS. The consultation period runs until 20^th May 2005.

The SPPA propose that the new-look LGPS could be introduced from 2008.

New–Look LGPS Highlights

The consultation paper includes a number of core elements which the SPPA suggest could be amalgamated with the best ones of the current scheme to form the building block for the future.

These include:

• A normal scheme retirement age of 65. Where benefits are paid before this age, except on ill-health grounds, they would be actuarially reduced to reflect the fact they are being paid early. Benefits brought into payment after this age would be actuarially increased.
• Benefits could accrue at 1.6% per annum, i.e. after 10 years service a member would receive a pension based on 16% of their salary.
• It is not intended with such an accrual rate that the Scheme could provide an automatic lump sum, but could instead allow members to commute part of their pension at a rate of 12:1; in other words, for every pound of pension foregone, £12 of lump sum would be awarded.
• Pensionable pay could be limited to basic salary. All other payments, such as bonuses, fees, overtime and allowances, would be excluded.
• Provision could be made for flexible retirement to ensure that members could chose to make arrangements for a more gradual approach to retirement, adjusting their work/life balance by reducing their hours or stepping-down to a less onerous job but, at the same time, able to draw some of their pension and accruing further pension rights.
• Tiered iIl-health retirement benefits could be introduced, with improved enhancement for members whose employment is terminated on grounds of being permanently incapable of performing any gainful employment by reason of ill-health. A second tier of un-enhanced ill-health retirement benefits could be available to those who are incapable of continuing in their role, but who are capable of undertaking other employment.
• It is proposed that survivor benefits could be extended to unmarried partners, as well as widow(er)s, registered civil partners and children.
• Death in service benefits could be increased to three times pensionable pay.

Implications

Some of the key elements and their implications are highlighted below.

Raising the Normal Retirement Age

UNISON Scotland has argued against this proposal to the current LGPS and is concerned that the same spurious arguments about increased life expectancy have been used in this consultation.

Further details of this debate can be found in previous P&I Briefings and Responses (see below).

Accrual Rate, Pensions & Lump Sum

UNISON Scotland would normally welcome an increase in the accrual rate as this would help scheme members build up a larger pension. However this change is proposed alongside other changes affecting both pensionable pay and access to a lump sum payment.

The decision to limit pensionable pay to basic salary only could have an impact on a significant number of scheme members, especially manual workers who regard shift allowances and contractual overtime as part of their basic pay.

The new look LGPS also proposes to have no automatic lump sum whereas the current scheme provides on equivalent to 3/80ths of pensionable pay. Although the new proposals could result in a larger lump sum (up to 25% of the benefits accrued) there is a resultant reduction in both the pension and survivors benefits.

Ill-Health

UNISON Scotland is concerned about the new proposals on ill-health. Further consultation needs to take place on this issue. Forcing members into alternative employment when they are incapable of carrying out their previous post seems a breach of the pensions contract. There does not seem to be any guarantee that employers will re-employ those who are unfit to continue in their original posts. There are also further concerns regarding the review of ill-health retirals which could result in cuts to pensions and a forced return to work for many pensioners.

Survivors Benefits

UNISON Scotland has campaigned on the issue of extending these benefits to unmarried partners. However this, as proposed by the SPPA, would lead to an increased contribution rate by members. There are also further concerns that the proposals only come into place on the date of any amendment and that previous service could be ignored.

Contributions

The move to a varied contribution rate with an average level of 7% contribution raises concerns with UNISON Scotland. While employees have contributed to the LGPS many employers have taken contribution holidays. Any underfunding in the LGPS should initially be met by those employers making back payments to cover their contribution holidays. There is a further concern that the 7% contribution level is too high for low earners (this would start at £7,000) and would result in a drop in members to the LGPS as it becomes unaffordable, especially to the low paid.

Action for Branches

This briefing paper is intended to update members on the proposed new look Local Government Pension Scheme in Scotland. UNISON will continue to campaign to protect and enhance the LGPS.

Branches should be involved in the Protecting Public Service Pensions Campaign on Friday 18^th February 2005. This involves a lobby of all MPs and MSPs in Scotland to stop the proposed changed to the LGPS and other public sector pension schemes.

UNISON Scotland Response to Proposed LGPS Phase 2 Changes

http://www.unison-scotland.org.uk/response/pensionresponse.html

P&I Briefing No104: LGPS Phase 2 Amendments

http://www.unison-scotland.org.uk/briefings/pensions2.html

UNISON Proper Pensions Campaign

http://www.unison.org.uk/pay/pensions.asp