Local Government Pension Scheme (LGPS) Key Issues

Briefing No.145 Sept 2006

Introduction

The Scottish Public Pensions Agency (SPPA) is consulting with trade unions and employers about a new look Local Government Pension Scheme (LGPS) in Scotland. Initially the SPPA released a consultation document, 'Facing the Future', in November 2004 looking at this issue.

This briefing highlights some of the key issues involved with the aim of getting branches and members to contribute to the debate. All comments should be sent to Dave Watson or Kenny MacLaren in the Policy and Information Team by Thursday 21^st September 2006.

Key Issues

Type of Scheme

Currently the LGPS is a final salary scheme with benefits related to a member's final salary on retirement.

Although the original Facing the Future paper looked at the retaining a Final Salary pension scheme, the consultation in England and Wales also looked at the option of introducing a Career Average Related Earnings pension scheme, as well as the option of final salary or a hybrid combination of the two.

UNISON Scotland is concerned that the current consultation process does not allow enough time to fully evaluate a major change such as a move from a final salary scheme.

Accrual Rates

Currently the LGPS has an accrual rate of 1/80th of pensionable pay plus a lump sum equivalent to 3/80ths of pensionable pay.

The SPPA are suggesting moving to a 1/62.5th accrual rate. It is not intended with this new accrual rate that the LGPS 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. However, pensionable pay would be limited to basic salary. All other payments, such as bonuses, fees, overtime and allowances would be excluded.

Contribution Rates

Currently employees pay 6% of salary (with some manual workers paying 5%) and employers pay a contribution to ensure the fund remains in balance.

The SPPA propose to move to a situation where there is a 2:1 ratio between employer and employees, with employees paying 7% and employers paying 14%.

UNISON Scotland is concerned about this proposal for a number of reasons. The Scottish LGPS funds are relatively healthy, both in comparison to the LGPS in England and Wales and to private sector pension funds, and there is not such a need for a cost saving exercise.

Also, 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.

The SPPA also raise the issue of introducing a graduated contributions scale for employees. This would link member's contributions to their basic salary, with an average rate of 7% but with variable bands to reflect member's ability to pay.

UNISON Scotland would prefer more information on this issue and how it would impact on member's benefits. Therefore, we would be looking for more clarification on the implementation and consequences of a varied contribution rate.

Ill Health Retirals

UNISON Scotland is concerned about the proposal on this issue which would see the introduction of a two-tier system. This would split ill health retirees into two groups – those who are permanently incapable of performing any gainful employment by reason of ill-health and those who are incapable of continuing in their current role, but who are capable of undertaking other employment.

UNISON Scotland is concerned about this proposal as it appears to be forcing members into alternative employment when they are incapable of carrying out their previous post and thus 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.

Partners Pensions

The SPPA propose to extend benefits to unmarried partners whereas currently the LGPS limits benefits only to widows, widowers and civil partners. UNISON Scotland would support this change.

Death in Service Arrangements

The change proposed is to increase a lump sum death grant from two times final salary to three times final salary.

Flexible Arrangements in the run-up to retirement.

SPPA propose that provision could be made for a more flexible retirement to ensure that members could choose 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. UNISON Scotland believes we need more details on this issue.

Timetable

Below is a timetable for the consultation and implementation of the new LGPS. Both unions and employers are trying to extend this but at the moment these are the target dates that we are working to:

Action for Branches

This briefing paper is intended to update members on the proposed new look Local Government Pension Scheme in Scotland and to encourage debate within branches.

All comments should be sent to Dave Watson or Kenny MacLaren in the Policy and Information Team by Thursday 21^st September 2006.

Further Information
UNISON Scotland Pension Pages
http://www.unison-scotland.org.uk/pensions/index.html

UNISON Pension Pages
http://www.unison.org.uk/pensions/index.asp

SPPA
http://www.sppa.gov.uk/

Contacts list:

Kenny MacLaren
k.maclaren@unison.co.uk

Dave Watson
d.watson@unison.co.uk

@ the P&I Team
14 West Campbell St
Glasgow G26RX
Tel 0141-332 0006
Fax 0141-307 2572