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Public Services Pensions

P/15/11
12 October 2011
PENSIONS

IT’S OFFICIAL – PAY MORE, GET LESS, WORK LONGER

DCLG LAUNCH CONSULTATION ON INCREASING MEMBER CONTRIBUTIONS AND REDUCING BENEFITS IN THE LGPS

Despite evidence and persistent argument from GMB, Local Government employers and LGPS pension funds; the Department for Communities and Local Government has launched a proposal to increase LGPS member contributions AND reduce the benefits provided by the scheme before further cuts in a new scheme for all members to be introduced in April 2015. DCLG is not proposing to consult scheme members – GMB believe you are entitled to have a say over your pension and there is a survey is attached and online.

This first set of cuts is to generate £900m a year from the LGPS in England & Wales by April 2014. Other public sector schemes have consultated on changes which amount to an average 1.28% increase in contributions, but DCLG has put forward a plan for including a 1.5% average increase in contributions PLUS a reduction in the scheme’s accrual rate. The only alternative suggested is a 1% average increase and a more severe cut in the scheme’s accrual rate. A full description of the proposals is attached to this bulletin. How does it affect you? Try our ready reckoner online at http://www.gmb.org.uk/docs/11188%20LGPS%20Consultation.xls

Unlike savings from the other schemes that are being collected by the Treasury, as the LGPS is a funded scheme, savings should go back into the scheme. However, government is seeking further changes to the scheme rules to make sure the extra money from member contributions and savings from benefit cuts are passed through to employers not used to improve the funding level of the scheme.

GMB believes the consultation DCLG has put forward fundamentally threatens the LGPS’s continued sustainability:
• It fails to improve the dangerously low participation levels in the scheme;
• It fails to consider the implication for funds of a fall in participation on cash flow and investment strategy;
• It fails to respond appropriately to the needs of the scheme’s membership or those tasked with administering the scheme.

In addition, DCLG has ignored evidence from the current scheme valuations that demonstrate huge savings to employers from the agreed reforms introduced in 2008. Government has also ‘banked’ savings from the cut in indexation, redundancies and the ongoing pay freeze and pay cuts that are noticeably more severe in local government than elsewhere. These savings are reducing the employer cost of the scheme by more than £2billion a year yet the Secretary of State, Eric Pickles, believes it is right to take another £1billion from the scheme and its members. We disagree strongly.

The scheme, and the 1.7m active members currently saving for their retirement in England & Wales, are being used to cover the shortfall that the government has created in the grant to local government.

Let’s be clear, this DCLG consultation has not been discussed with trade unions. It’s not just the unions, even the recent proposal from the Local Government employers has been virtually ignored, it is attached to the DCLG consultation but does not form part of it. GMB remains committed to finding an acceptable solution but this consultation from DCLG reinforces the need for us to proceed with the ballot for strike action on November 30th.

Next Steps
• Look at the proposals from DCLG attached to this bulletin and answer our online survey or use the response form attached by 28 October
• Note that GMB continues to prepare the industrial action ballot alongside all other unions
• Ballot papers will be sent out to members’ home addresses on 31st October
• The ballot will be counted on 16th November
• Members should talk to their colleagues and encourage them to join GMB in order to vote in the ballot - http://www.gmb.org.uk/join
• GMB members should check their membership details are correct, if the address we have for you is wrong, you won’t get a ballot paper - http://www.gmb.org.uk/login
• Keep checking the website for latest news - http://www.gmb.org.uk/pspc

Brian Strutton

Brian Strutton
National Secretary - Public Services Section

GMB NATIONAL OFFICE CONTACT: Brian Strutton
22-24 Worple Road, London SW19 4DD Telephone: 020 8947 3131 Tel: 020 8971 4255 Fax: 020 8944 6552
http://www.gmb.org.uk email:
DCLG CONSULTATION – 7th October 2011

The Department for Communities and Local Government issued a consultation on 7th October about changes to the LGPS. They set out two options, both involving higher contributions and worse accrual. The options are set out below with examples.

Option 1

1. Increase employees’ contributions from April 2012 from average 6.5% to 8%; and
2. Cut the scheme accrual rate from 1/60th per year of service to 1/64th in April 2013 and cut it again to 1/65th in April 2014

1. Contribution Increases

Members should be aware that the bands below relate to full time equivalent earnings, so if you work less than full time hours the relevant band for you is the one that relates to the pay you would get if you worked full time (even if that is impossible), not your actual pay. This means in practice that very few are covered by the protection for the lowest paid that government promised.

The increase is staged as set out in this table with increases every year leading up to a new scheme that government intends to introduce in April 2015.

Earnings (full time) Current Contribution Rate Contribution Rate
April 2012 – March 2013 Contribution Rate
April 2013 – March 2014 Contribution Rate From April 2014
< £12,901 5.5% 5.5% 5.5% 5.5%
£12,901 - £15,100 5.8% 5.8% 5.8% 5.8%
£15,101 - £19,400 5.9% 5.9% 6.0% 6.0%
£19,401 - £21,000 6.5% 6.7% 7.2% 7.7%
£21,001 - £32,400 6.5% 7.2% 8% 8.3%
£32,401 - £43,300 6.8% 7.5% 8.3% 8.7%
£43,301 - £60,000 7.2% 8.2% 8.7% 9%
£60,001 - £81,100 7.2% 8.7% 9.2% 10%
£81,101 - £100,000 7.5% 9% 9.8% 11%
£100,001 - £150,000 7.5% 9.5% 11% 12%
> £150,000 7.5% 10% 12% 12.5%

Example
Michael earns £25,000 a year and currently contributes £1,625 a year to the LGPS. These increases mean that in April 2012 he will need to pay in £1,800 a year to stay in the scheme, in 2013 that will increase to £2,000 a year and from April 2014 he will need £2,075 to stay in a scheme that will be building up less pension than now.

Part timers beware!
If you earn £10,000 a year but work half hours (50% of a full timer’s hours) your full time equivalent earnings in the table above are £20,000. This means your contribution over this period would increase by £120 a year from £650 (6.5%) to £770 (7.7%) but because of the cut in accrual rate you will be building up less pension.

2. Cut in Accrual Rate

In the LGPS at the moment you build up 1/60th of your final salary for every year you are in the scheme. So if you have been a full time member of the LGPS for 20 years and retire on a salary of £14,000 your pension will be 20/60 multiplied by £14,000 i.e. £4,667 a year.

CLG propose that in the year April 2013-4 you will only build up 1/64th of your final salary and from April 2014 the rate will be 1/65th.

Example
Karina joined the LGPS in April 2010, she leaves the LGPS in April 2025 by which time her full time salary is £20,000 a year. Her pension from the LGPS 2008 would have been £5,000 a year. However, under this proposal her pension will be worth £4,697 a year which is calculated as follows:

LGPS 2008 Pension: 15 (years service) * 1/60th (accrual rate) * £20,000 (final salary) = £5,000 [for a total member contribution on £19,500]

Reduced pension as a result of this consultation:
3 (years service) * 1/60th (accrual rate) * £20,000 (final salary) + 1 * 1/64th * £20,000 + 11 * 1/65th * £20,000 = £4,697 [for a total member contribution of £22,320]

Annual pension lost over total scheme membership = £303
Extra annual member contributions over scheme membership = £2,820

Option 2

1. Increase employees’ contributions from April 2012 from average 6.5% to 7.5%; and
2. Cut the scheme accrual rate from 1/60th per year of service to 1/67th in April 2014

1. Contribution Increases

The increase is staged as set out in this table with increases every year leading up to a new scheme that government intends to introduce in April 2015.

Earnings
(full time) Current Contribution Rate Contribution Rate
April 2012 – March 2013 Contribution Rate
April 2013 – March 2014 Contribution Rate From April 2014
< £12,901 5.5% 5.5% 5.5% 5.5%
£12,901 - £15,100 5.8% 5.8% 5.8% 5.8%
£15,101 - £19,400 5.9% 5.9% 6.0% 6.0%
£19,401 - £21,000 6.5% 6.5% 6.8% 6.8%
£21,001 - £32,400 6.5% 6.8% 7.2% 7.5%
£32,401 - £43,300 6.8% 7.1% 7.8% 8.2%
£43,301 - £60,000 7.2% 7.8% 8.4% 8.8%
£60,001 - £81,100 7.2% 8.7% 8.8% 9.5%
£81,101 - £100,000 7.5% 9% 9.8% 10.5%
£100,001 - £150,000 7.5% 9.3% 10.8% 11.5%
> £150,000 7.5% 9.5% 11.8% 12.5%

Example
Michael earns £25,000 a year and currently contributes £1,625 a year to the LGPS. These increases mean that in April 2012 he will need to pay in £1,700 a year to stay in the scheme, in 2013 that will increase to £1,800 a year and from April 2014 he will need £1,875 to stay in a scheme that will be building up less pension than now.

Part timers beware!
If you earn £10,000 a year but work half hours (50% of a full timer’s hours) your full time equivalent earnings in the table above are £20,000. This means your contribution over this period would increase by £30 a year from £650 (6.5%) to £680 (6.8%) but because of the cut in accrual rate you will be building up less pension.

2. Cut in Accrual Rate

In the LGPS at the moment you build up 1/60th of your final salary for every year you are in the scheme. So if you have been a full time member of the LGPS for 20 years and retire on a salary of £14,000, your pension will be 20/60 multiplied by £14,000 i.e. £4,667 a year.

CLG propose that from April 2014 you will only build up 1/67th of your final salary.

LGPS 2008 Pension: 15 (years service) * 1/60th (accrual rate) * £20,000 (final salary) = £5,000 [for a total member contribution on £19,500]

Reduced pension as a result of this alternative:
4 (years service) * 1/60th (accrual rate) * £20,000 (final salary) + 11 * 1/67th * £20,000 = £4,617 [for a total member contribution of £20,220]

Annual pension lost over total scheme membership = £383
Extra member contributions over scheme membership = £720

Summary

• In either ‘option’ LGPS members are being asked to pay more and get less pension.
• The money generated through increased contributions and benefit cuts will not be used to improve the financial state of the scheme.
• DCLG has not recognised the impact its proposals will have on the majority of members of the LGPS who are low paid, part time workers.
• DCLG has not considered the danger its proposals pose to the future sustainability of the LGPS.
• These proposals are not scheme reforms as discussed in the Hutton Report, they are a tax on the LGPS and its members to be used to mitigate government’s cuts to local authority budgets.
• GMB has not been consulted over these proposals.

GOVERNMENT CONSULTATION ON
INITIAL CHANGES TO THE
LGPS ISSUED 7 OCTOBER 2011

Government has no intention of consulting LGPS members over the proposed changes to pensions. GMB believes this is wrong. Have your say by completing the GMB survey below or online. Government has put forward two options:

Tick () one

• Option 1
a) Increase employees’ contributions
from April 2012 from average 6.5% to 8%
and
b) Cut the scheme accrual rate from 1/60th
per year of service to 1/64th April 2013 then
cut it again to 1/65th in April 2015.

• Option 2
a) Increase employees’ contributions from
April 2012 from average 6.5% to 7.5%
and
b) Cut the scheme accrual rate for 1/60th per year
of service to 1/67th in April 2014.

• None of the above

Please also answer this additional question:

If either of the Government’s options described above
was imposed would you opt out of the pension scheme? YES

Return details: Please complete online at:
http://www.surveymonkey.com/s/gmblgpsconsultation, alternatively send or email to Brian Strutton, GMB, 22-24 Worple Road, London SW19 4DD ()