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Consultation on LGPS October 2011 ENGLAND AND WALES Communities and Local Government (CLG)

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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

Women’s 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 couldn’t 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

UNISON’S 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 can’t 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 hasn’t 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 MP’s 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