Pensions presentation

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Powerpoint presentation on proposed changes to LGPS

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  • Consultation on LGPS

    October 2011 ENGLAND AND WALES

    Communities and

    Local Government

    (CLG)

  • Scotland and

    Northern Ireland Discussions ongoing

    But both subject to RPI > CPI change

    And likely changes in future

    Both included in the ballot

  • Remember LGPS not gold-plated

    50% pensions < 3,000 per annum

    Average pension just over 4,000

    Womens pension 2,600

    Reflects low pay and part-time work

    Two-year pay freeze will affect pension

  • CLG consultation launched Launched on 7 October

    Closing date 6 January 2012

    Includes CLG proposals and...

    Proposals already submitted by LGG

    LGG proposals can be fully considered alongside CLG proposals

    CLG has two different approaches

  • CLG proposals core principles

    No contribution increase for those earning less than 15,000 full time equivalent

    1.5% increase for those earning 15 - 21,000 full time equivalent

    High earners to pay progressively more

    But no more than an additional 6%

  • CLG proposals approach 1 Increase employee contributions

    in April 2012, 2013 and 2014

    to raise 450m 1.5% savings

    No increase for those paid less than 15,000

    1% for those between 15,000 and 19,400

    6% above 150,001

  • CLG approach 1 (continued)

    Change the accrual rate from 1/60 to...

    1/64 in April 2013 and then...

    to 1/65 in April 2015

    Will raise further 450 million

    Combined with savings from contribution increase = 900 million

  • CLG approach 2 Increase employee contributions in

    April 2012, 2013 and 2014

    Same principles for lower paid

    Will raise 300 million

    Change the accrual rate from 1/60 to 1/67 in April 2014

    Will raise 600 million

    Combined = 900 million

  • Discussions with LGG UNISON, GMB and Unite

    On behalf of 11 unions

    Want solution but couldnt agree

    LGG submitted proposals to SOS without union sign-up...

    And...

    CLG consultation launched 10 October

  • LGG proposals 1 Retirement age of 66 from 1/4/14 = 330m

    savings

    2 - 2.5% increase in contributions for earners over 21,000

    70% LGPS members earn < 21,000

    1.5% increase for 15 - 21,000 earners

    No increase for those below 15,000

    Contribution savings = 605 million

  • LGG proposals 2 Retention of 1/60 accrual rate for

    < 15,000 earners

    Worse accrual rate of 1/68 for those above 15,000

    < 15,000 earners can reduce contributions for worse accrual rate

    Earners above 15,000 can pay higher contributions to keep 1/60 accrual rate

  • Further possible LGG proposals

    Vesting period increased from 3 months to 2 years

    Active members with 3+ months but < 2 years get deferred pension or refund

    Improve actuarial reduction factors from 4.5 - 5% to 4% for each year before

    normal retirement age

  • LGG case study 1 FTE salary = 14,700

    Current accrual rate = 1/60th

    Current contribution rate = 5.8%

    Assume 10 years membership by 2014 then another 10 years to retirement

    Prior to changes pension = 2,450

    After = 2,450 (no change)

    If opts for 1/68th accrual = 2,162

  • LGG case study 2 FTE salary = 20,000

    Current accrual rate = 1/60th

    Current contribution rate = 6.5%

    Assume 10 years membership by 2014 then another 10 years to retirement

    Prior to changes pension = 3,333

    After contribution increase of 1.5%, pension = 3,333

    If opts for 1/68th accrual = 2,941

  • LGG case study 3 FTE salary = 42,000

    Current accrual rate = 1/60th

    Current contribution rate = 6.8%

    Assume 10 years membership by 2014 then another 10 years to retirement

    Prior to changes pension = 7,000

    After contribution increase of 2.5%, pension = 7,000

    If opts for 1/68th accrual = 6,176

  • What LGG are proposals for? Only for short-term savings 900m

    Negotiations for long term scheme due to start in October

    LGG want no change until 2014

    Net effect is the same for members

    LGG wants 2014 date to avoid 2013 valuation hence 2014 implementation

  • What happens next?

    LGG proposals sent to CLG and Treasury

    Formal consultation on CLG and LGG proposals until 6 January

    Draft regulations laid in parliament in January

    Can only be withdrawn by Sec of State or majority of MPs praying against

    Pressure needed before January

  • UNISONS response proposals not necessary at this point

    LGPS takes in 4bn more each year than it pays out

    It will be cash rich for 15+ years

    165bn in combined fund

    Invested in domestic and global economies

    But... will need changes to reflect longevity improvement at some point

  • Savings already made

    twice over! 2bn saved for employers since 2008

    Cost reduced from 20% - 18% payroll already

    Two-year pay freeze has reduced payroll and final salary pensions of LG members

    10% reduction in jobs

    Fewer ill-health retirements

    More lump sum commutation

    No 85 rule retirement age of 65 already

  • Members cant afford extra cost

    Median LG earnings 17,000

    200,000 earn < 6.50 per hour

    Two-year pay freeze with no 250 in either year for NJC workers

    Below inflation increases before that

    Major cuts to pay and other conditions

    Many low paid not in the scheme now AFFORDABILITY

  • Danger of opt-outs High level of opt-outs could make some

    funds/schemes vulnerable

    But... auto-enrolment from 1 April 2012

    Many employees who opted out will be opted in to the LGPS!

    Can opt-out again within 3 months

    Contributions will be returned

    CHAOS!!

  • Future discussions? We will continue discussions through the

    formal consultation period

    But... discussions on long-term scheme from 2015 also start in October!!

    Treasury hasnt produced cost ceiling yet so critical information missing

    An employer cap could follow later

    Process disjointed and unreasonable

  • Reference scheme for future discussions 1

    Based on Hutton Report

    Covers all public pensions from 2015 and includes:

    Career average scheme (care)

    Benefits to be broadly as generous for low and middle income earners as now

    But contributing for 48 years!

  • Reference scheme 2 NPA to be SPA or 65 whichever higher

    CPI indexation (already implemented)

    Earnings revaluation of past service for active members

    Contributions assumed 3.2% above current weighted average

    Optional lump sum commutation on 12:1 ratio (same as now)

  • Reference scheme 3 Ancillary benefits = those in schemes

    currently open to new members

    Members rejoining LGPS after > 5 years can link new and past service

    Members transferring between schemes have continuous service

    (inc transfers of re-joiners > 5 years)

    No cost ceiling yet....DANGER!!

  • Ballot timetable 28 September ballot notices despatched

    to employers

    11 October ballot of members opens

    17 October members without ballot papers phone UNISONdirect on

    0845 355 0845

  • Ballot timetable 31 October noon deadline for members

    requesting ballot papers from

    UNISONdirect

    3 November ballot closes at 10am

    Employers and members notified of result

    30 November if YES vote, strike action

    So.....

  • Vote YES! We need a massive turnout...

    ... and a massive YES vote

    We need to send a strong message to ministers ...

    ... to get the basis of the negotiations changed

  • Our wider campaign Must be political as well as industrial

    Vital to fill MPs mailbags through mass letter-writing campaign

    Councillors too (many are LGPS members)

    Needs to engage the public ...

    ... and those in the private sector

    Winning the propaganda battle is key

  • Ballot opens 11 October and closes 3 November

    Ballot opens 11 October and closes 3 November