The injustice of Local Government Pensions.
Posted by: Don Atkinson on 15 March 2015
BBC Radio 4 – so it MUST be true – at17:00 today.
4.5 million workers and pensioners are part of Local Government Pension Schemes. The aggregated value of these pension funds is c.£180bn and their liabilities are c.£230bn ie they have a deficit of c.£50bn. 98% of all the schemes are in deficit.
The schemes are funded jointly by employees (past, present, future) and the LAs. Employees make fixed (%) contributions as do the LAs as part of the employment contract. The deficit is made up by the LAs, not the employees.
Funding by the LAs is derived from Local taxation plus the Central Government allocation. You, me and all the rate-payers and tax-payers are therefore subsidising these Local Government Pension Schemes whether we like it or not. In turn therefore, we are all subsidising 4.5milloin LA employees and pensioners. We are forced to pay, either by increased taxation or by a reduction in the services provided by central and local governments.
This is grossly unfair and unsustainable.
Which political party will put an end to this injustice? They will have my vote in May !
The figures quoted were those of the BBC Radio 4 programme. Assuming 25m taxpayers, I guess that would mean each one contributing £2,000. 50m tapayers and the contribution drops to £1,000.
Googled the meaning of "future liabilities" in a pensions context, this is the value of pensions payable to all current members of the scheme. The time span these pensions will be paid could be more than 50 years. That's 50m taxpayers forking out an average of £20 a year.
This also came up in my search.
Local Government Pension Scheme 2013: Investing in a changing world: An NAPF report
http://www.napf.co.uk/Policyan..._An_NAPF_report.aspx
Policy change
However, arguably the biggest change and time of challenge for the LGPS and the LA funds is set to come. The introduction of the new scheme in 2014 resulting from the Hutton reforms, the roll out of auto-enrolment, and the abolition of contracting out in 2016 will all have significant implications for scheme funding, design, governance, administration and investment.
The new LGPS
In 2010 the Government asked Lord Hutton of Furness to chair an independent commission11 to review all the current public service pension arrangements and make recommendations for reform that would be sustainable and affordable in the long term and fair to both the public service workforce and the taxpayer. Lord Hutton published his final report in June 2011.
His key recommendations for all public service pension arrangements were:
they should be based on career average (rather than final) salary;
normal retirement ages should be linked to the state pension age (except for uniform
services, which should be 60);
accrued rights should be honoured in full;
employee contribution rates should be tiered depending on salary;
the new arrangements should be cost capped to limit taxpayer exposure;
to have new and improved governance arrangements, with member representation; and
all reforms should be introduced by the end of the current Parliament (2015).
The Government accepted Lord Hutton’s recommendations as an overarching proposal for all
schemes and a basis for negotiations.
Following this (in November 2011) the Local Government Association (LGA) and unions agreed a ‘heads of terms’ deal to deliver the Hutton reforms in the LGPS. A final deal was published in May 2012. The key differences to the reform of the LGPS, compared with other public sector schemes, are:
the reforms will be implemented a year earlier in 2014. This is because it better fits with the
LGPS’s valuation cycle and enables the scheme to avoid short-term employee contribution
increases that might have encouraged opt outs; and
a lower cost 50/50 option that will mean employees can opt to pay reduced contributions in
return for reduced benefits. This is designed to encourage participation amongst younger
workers and those on low incomes.
Both the reforms to public service pensions overall, and the specific changes to the LGPS were in line with recommendations made by the NAPF.
This also came up in my search.
Local Government Pension Scheme 2013: Investing in a changing world: An NAPF report
http://www.napf.co.uk/Policyan..._An_NAPF_report.aspx
Policy change
However, arguably the biggest change and time of challenge for the LGPS and the LA funds is set to come. The introduction of the new scheme in 2014 resulting from the Hutton reforms, the roll out of auto-enrolment, and the abolition of contracting out in 2016 will all have significant implications for scheme funding, design, governance, administration and investment.
The new LGPS
In 2010 the Government asked Lord Hutton of Furness to chair an independent commission11 to review all the current public service pension arrangements and make recommendations for reform that would be sustainable and affordable in the long term and fair to both the public service workforce and the taxpayer.(moving in the right direction !) Lord Hutton published his final report in June 2011.
His key recommendations for all public service pension arrangements were:
they should be based on career average (rather than final) salary;(moving in the right direction)
normal retirement ages should be linked to the state pension age (except for uniform
services, which should be 60);
accrued rights should be honoured in full;
For example, most Final Salary schemes are closed to new entrants and many are also closed to existing members although their accrued benefit to date is frozen. They are offered CARE schemes for new starters and existing members for the balance of their employment.
Although I wrote those words in my 5th post in relation to Private sector schemes, I assumed it would be understood that I considered accrued benefits would be safeguarded in all schemes
employee contribution rates should be tiered depending on salary;
the new arrangements should be cost capped to limit taxpayer exposure; (Getting close !)
to have new and improved governance arrangements, (getting close! ) with member representation; and
all reforms should be introduced by the end of the current Parliament (2015).
The Government accepted Lord Hutton’s recommendations as an overarching proposal for all
schemes and a basis for negotiations.
Following this (in November 2011) the Local Government Association (LGA) and unions agreed a ‘heads of terms’ deal to deliver the Hutton reforms in the LGPS. A final deal was published in May 2012. The key differences to the reform of the LGPS, compared with other public sector schemes, are:
the reforms will be implemented a year earlier in 2014. This is because it better fits with the
LGPS’s valuation cycle and enables the scheme to avoid short-term employee contribution
increases that might have encouraged opt outs; and
a lower cost 50/50 option that will mean employees can opt to pay reduced contributions in
return for reduced benefits. This is designed to encourage participation amongst younger
workers and those on low incomes.
Both the reforms to public service pensions overall, and the specific changes to the LGPS were in line with recommendations made by the NAPF.
I have highlighted a few more elements.
Clearly Hutton was heading in the right direction. Presumably it has all been implemented but we staill have a residual problem ?
And no problem, residual or otherwise, except in Don's fevered imagination. cont. p94
.............it has all been implemented but we still have a residual problem..............
So, many of the ideas that I was suggesting and you were all berating as ludicrous etc etc, have been implemented following a report by a well respected Lord and you all now seem happy to commend these ideas and applaud their implementation. I'll call that progress.
However, the BBC Radio 4 programme identifies an outstanding (*) problem of a £50bn deficit which I report and ask who is going to resolve it. Not too many helpful responses. I can't call that progress.
(*) please read that to incorporate both interpretations of "outstanding"
You are now talking to yourself, Don...good.
Unfortunately, I think that sums up the mindset of many Public sector workers.
Sorry, I couldn't resist.
And at the annual review, my pension has also gone up...
Also Ker-Ching!
Whether it is public pensions, or private ones that are bailed out (e.g., General Motors here is the USA), these lead me to one common "gripe".
When taxes have to be raised to cover this, it leaves people like me who have to save for their own retirement in a limited position to do so, because I have less money from which to fund my private retirement account. This financial limitation is often not insignificant, especially as it is subject to the same issues (inflation, investment issues such as lack of yield, bubbles that burst, etc.) that plague the retirement programs for the public sector pensions.
So why am I supposed to sacrifice my retirement funding to save that of others? Why am I supposed to worry about people who quite apparently are not at all concerned for my well being later in life?
I am really not being sarcastic, but it seems that it is a one way street...and the prospect for a comfortable retirement seems to get more elusive to me all the time. In fact, the prospect for any retirement is getting more elusive, inasmuch as my "public pension" (Social Security) is also likely to be bankrupt before I die.
When I worked in the public sector my pay was 10% below that in the private sector even after including the notional 17% employer's pension contribution (which the government promptly spent instead of saving, thus causing the deficiency!). The pension was a major part of my decision to take the job in the first place. During that time others were paying less tax as public sector employees were being paid less.
That the government squandered this saving is not something I can do anything about. Should I take a hit on my pension because they did? If so, how do I now replace the money I would have been able to save if I had that extra 10%.
N.B. Don's figures highlight a particular point in time, when practices in the private sector had already changed and changes to practices in the public sector lagged behind. This view is a case of being selective with the truth; and his statement "Unfortunately, I think that sums up the mindset of many Public sector workers." in reference to HH's jest is quite insulting.
Incidental the pension I am now taking that has just gone up is one from the private sector, and is providing me with a much better income than my public pension ever will.
N.B. Don's figures highlight a particular point in time, when practices in the private sector had already changed and changes to practices in the public sector lagged behind. This view is a case of being selective with the truth;Huge, I an not being selective with the truth and shame on you for suggesting it. Too many people continue to try to justify their Public sector pensions by claiming that their salary is well below that of the Private sector. It isn't and it hasn't been so for a long long time. That myth is insulting and needs to be put aside. It is irrelevant. Public sector pensions in general are more generous than those available in the Private sector. I covered that in more detail last time round. The issue here is that of the taxpayer is being used to fund the deficit in LA pensions. That is unjust.
.and his statement "Unfortunately, I think that sums up the mindset of many Public sector workers." in reference to HH's jest is quite insulting.No it isn't. HH might have been trying to be funny, or simply trying to wind me up, and I accept that, but it reveals an underlying trait that I have observed in many Public sector workers - they not only try to justify their generous pensions with low-pay whinging, but they jealously gaurd their pension provision and effectively wave two fingers at the fairy godmother taxpayer citing their contract with a "bankrupt" employer as the grounds for demanding their rights.. "ker-ching" sums this up nicely.
Sorry, I couldn't resist.
Its ok. Reminded me of Dark Side of the Moon......................pretty relevant today.
Too many people continue to try to justify their Public sector pensions by claiming that their salary is well below that of the Private sector. It isn't and it hasn't been so for a long long time. That myth is insulting and needs to be put aside.
.
Don - if I may, I'd suggest both arguments are right and wrong because the reality as shown by various pay review bodies is much more nuanced, and will vary geographically and by seniority/profession. For example, relatively junior administrative jobs in the public sector outside of the SE of England are often better paid that the median for equivalent roles in the private sector. Conversely senior roles, e.g. director level, CFO etc, especially in London, are a very long way behind their private sector equivalents.
Regardless, though, people taking such public sector jobs will reasonably view their salary and pension provision as part of their total remuneration package and consequently I think have a reasonable expectation that their employer will honour the pension commitments they have contracted for. Indeed, I believe that pension rights accrued are protected by EU employment legislation.
Since you don't intend to be selective, then I assume that you've just forgotten to provide sufficient historic data to back up your statements concerning historical pay rates (employment typically lasts 45 years, so that is the minimum time period over which the data needs to be provided).
I also take it that you have access to survey results concerning the attitude amongst public sector workers to society in general, to backup the claim that you know the mindset of many of them.
Without these data, my comments concerning your position still stand. Provide these pieces of evidence and I'll withdraw my comments (assuming that you can show that you had the information when you made your claims of course).
Too many people continue to try to justify their Public sector pensions by claiming that their salary is well below that of the Private sector. It isn't and it hasn't been so for a long long time. That myth is insulting and needs to be put aside.
.
Don - if I may, I'd suggest both arguments are right and wrong because the reality as shown by various pay review bodies is much more nuanced, and will vary geographically and by seniority/profession. For example, relatively junior administrative jobs in the public sector outside of the SE of England are often better paid that the median for equivalent roles in the private sector. Conversely senior roles, e.g. director level, CFO etc, especially in London, are a very long way behind their private sector equivalents.
Regardless, though, people taking such public sector jobs will reasonably view their salary and pension provision as part of their total remuneration package and consequently I think have a reasonable expectation that their employer will honour the pension commitments they have contracted for. Indeed, I believe that pension rights accrued are protected by EU employment legislation.
Of course. But when Public sector workers make simple claims suggesting that all Public sector workers are paid less than their Private sector counter-parts I make an equally simplistic counter-argument. Life's too short.
And when these claims are extended to suggest that all Public sector workers deliberately chose their job specifically and almost exclusively to enjoy a guaranteed generous pension, again I am somewhat doubtful. It would make a rather dull person in my opinion.
I am not objecting to LA workers claiming their "Contractual Pension Rights". Simply that its unjust that the easy option of the taxpayer is used. There are other options as have been outlines in this thread.
my comments concerning your position still stand.
Your comments are irrelevant. Its about time Public sector workers and their employers looked other than to the taxpayer to fund their pension deficits.
Your comments are irrelevant. Its about time Public sector workers and their employers looked other than to the taxpayer to fund their pension deficits.
Don,
You clearly have some pathological guilt that you are in receipt of a pension that you feel is a deeply unfair burden on taxpayers.
Whilst I might sysmpathise with your plight (I don't btw), I ask that you stop projecting your guilt onto others and do as I have suggested previously - send your public service pension back to the Treasury and be absolved: tua culpa, tua culpa, tua maxima culpa.