Local government pensions, unions nd scaremongering

Moby

Jessikita read this............. its useful because it contradicts the rubbish you read in the Daily Mail:-

Facts about the LGPS that the politicians conveniently ignore
Many inaccurate statements about the Local Government Pension Scheme have gone unchallenged by the media. This Pensions Bulletin highlights the most prevalent and erroneous of these myths and states the realities. It sets out the facts to counter the propaganda being peddled by politicians.
MYTH: 25% of council tax is spent on the LGPS
REALITY: Less than 6% of council tax revenue is used to fund the pension scheme which provides the average scheme member with a pension of £4,000 a year, just sufficient to keep most above the poverty level below which means tested state benefits (paid for by the taxpayer) are payable.
MYTH: Workers in the private sector have to pay for the LGPS while local government workers reap the benefits
REALITY: Everyone pays for everyone else’s pension. Companies with occupational pension provision for their employees include pension costs when pricing their goods and services. All taxpayers pay for the cost of inadequate pension saving (increasingly prevalent in the private sector) through the tax and national insurance spent on increased take up of state benefits, NHS and council care services.
MYTH: The current economic situation means the LGPS needs to be cut
REALITY: Benefits already earned by members have to be paid, whatever changes are made to the scheme. There are no short term cost savings to be made from making radical benefit cuts. The LGPS is funded over decades and the pensions already built up by four million people in the UK must be paid for. This is much harder to achieve if the scheme is closed and no new money from members is payable. The costs of schemes closed to new entrants rise as the lack of new money causes cash flow and security problems over the long term as the pensions owed fall due. The structure of the current LGPS 2008 is designed to be sustainable over the long term in recognition that while the scheme will result in savings to employers and taxpayers, these will not be evident immediately.
MYTH: LGPS members leave employment with big pay outs as well as guaranteed pensions for life
REALITY: All defined benefit schemes provide pensions for life underpinned either by the Pension Protection Fund or statutory guarantee. Big pay outs on redundancy or early retirement are a feature of the highest earners in either the public or private sector. The average local government worker is no more likely to get a large redundancy payment than the average private sector worker.
Chief Executives in both sectors, however, have benefited from extremely generous exit packages. A key difference, is that in local government the highly paid executives are in the same scheme as the workers. In the private sector many company directors and senior managers set up their own exclusive defined benefit schemes on extremely generous terms with most of the investment being directed overseas while their employees have only a low value defined contribution scheme.
MYTH: LGPS costs are soaring and the scheme is unsustainable
REALITY: The costs of all defined benefit schemes fluctuate as do the benefits of defined contribution schemes. The LGPS is in a better position than most other schemes as it can and should plan its funding over a longer period, making it substantively less vulnerable to short term fluctuations. Year on year, the LGPS takes £billions more in contributions and investment returns than it pays out in benefits. In addition, the built in sustainability strategy will ensure that the scheme is managed transparently and fairly to members, employers and taxpayers.
MYTH: LGPS members have a job for life and better pay than everyone else
REALITY: The average length of membership in the LGPS is only six years in stark contrast to the vision of a job for life. In addition 9,000 local government workers over the age of 50 have lost their jobs in the last year with many more redundancies planned across the country. Existing jobs are often part time and low paid with minimal opportunity for overtime and other mechanisms common in the private sector to boost income. Many of the lowest paid jobs have been outsourced to the private sector, distorting the average pay figures. Despite the fictional impression often conveyed about council jobs, there are major problems in recruitment for some key jobs. For example, 57% of councils report increasing difficulties in recruiting social workers and 38% report difficulties in keeping the social workers they already employ. The LGPS is worth about 20% of a member’s total remuneration package (including their own contributions) and is therefore an integral part of the recruitment and retention strategy across local government.
MYTH: Local government pensions are paid straight from the public purse
REALITY: The LGPS, like all private sector defined benefit schemes, is a funded scheme with real investments in UK and overseas business and tangible assets such as property all generating returns to the 101 funds that make up the Local Government Pension Scheme in the UK. The LGPS is worth over £100bn with individual funds investing millions of pounds every day in UK industry. Some parts of the UK economy such as Merseyside and the North East have seen millions of pounds of investment leading to much needed wealth and job creation. Winding up the LGPS so that the Government’s ‘friends’ in the pension industry could soak up the assets and offer an inferior scheme, would reduce investment in the UK economy at a stroke, with potentially devastating consequences for the private sector. Even in the depths of the recession LGPS investments provided nearly £3 billion from the LGPS in England alone, accounting for 27% of that scheme's income.
MYTH: LGPS members retire at 60 and get a pension for nothing
REALITY: The normal retirement age (NRA) in the LGPS is 65 and has been for many years. The NRA itself is also now under threat as the Government wish to raise this to 66 initially with the prospect of further increases within the next decade. Members of the scheme contribute between 5.5% and 7.5% of earnings depending on salary, averaging 6.4% overall. This is more than double the amount of the average that a member of a defined contribution scheme contributes. In fact, income from member contributions to the scheme in England last year increased by 15%.
MYTH: To make pensions fair public sector provision must be reduced to the level common in the private sector
REALITY: The ideological and divisive ‘race to the bottom’ being perpetrated by the Coalition Government would increase the number of older people forced to live in poverty which in turn will increase the cost to the taxpayer of state benefits, health and care services. It is never the right solution to inequality to stoop to the level of the lowest common denominator. In education the solution to the problem of good schools and bad schools is not to worsen the good schools so that all children are poorly educated! In pensions the solution is not to worsen the good schemes but to raise the standard of the inadequate schemes. Napo believes in Fair Pensions For All and is proud to be part of the TUC Campaign towards that cause.
MYTH: The new LGPS only affects new starters while existing members have their own preferential scheme
REALITY: Reforms to the LGPS affected all contributing scheme members, existing and new. The LGPS is not a ‘two tier scheme’, the LGPS 2008 is the scheme for any one of the two million people working in LGPS covered employment whether they started ten years ago, ten minutes ago or are due to start tomorrow. Existing members sacrificed benefits and increased their contributions in order to keep the scheme sustainable.
MYTH: LGPS funds don’t have the same regulatory burden as private sector schemes
REALITY: Private sector defined contribution schemes have remarkably little regulation. However, defined benefit schemes, since the newspaper tycoon Robert Maxwell’s wholesale theft of the pension fund built up by Daily Mirror staff, have been regulated more heavily and while the LGPS hasn’t always been subject to the same stipulations, past instances of political short-termism cast long shadows over the scheme. One reason for current deficits is that LGPS funds were for some years encouraged by a Conservative Government to fund only to 75% so that the pension scheme could fund lower Council Tax bills. Now deficits are measured against a 100% funding requirement, but the cost of this historic underfunding is clear.
The Unions’ Arguments
Both Government and independent assessments demonstrate that the current savings in the LGPS far exceed the 3.2% savings the government is seeking. In the separate discussions with the Government and the Local Government Employers, the unions have been highlighting the fact that the cost of the LGPS is already reducing as a result of:
Ø The Falling Cost of the LGPS 2008
A number of changes were made to the LGPS in 2008. When these were introduced, the future service cost (i.e. the cost of pensions) currently being built up within the LGPS scheme in 2008 was 20% of payroll. Over time, the Treasury’s own Actuary expects this to fall to less than 18%. The employers will enjoy the entire benefit from the reduction in cost - in cash terms a £600 million reduction.
Ø Benefit Indexation Changes: RPI to CPI
The cut in the indexation of LGPS benefits from the Retail Price Index (RPI) to the Consumer price Index (CPI) results in two savings for the LGPS (as it does for all funded pension schemes). Firstly, the average annual cost of pensions being built up reduces by 1.23%. In cash terms this reduces the annual cost of the LGPS by £375 million. Secondly, the cheaper indexation reduces the cost of the pensions already built up by members to an average of 2% for the next 20 years. In cash terms this has reduced the employer contributions to the LGPS from April 2011 by £600 million. But none of these savings have been recognised as contributing to the Government target described earlier in this paper.
A judicial review on the way in which the Government imposed the RPI to CPI indexation change is expected to take place sometime between now and the end of the year.
Ø Job Losses
Thousands of people have already lost their jobs in local government as a result of the Coalition cuts policies and redundancies are likely to continue. A conservative assumption is that there will be a 10% reduction in the workforce covered by the LGPS. This will further reduce the employers’ annual pension costs by 1.4% or £420 million.
Ø Nearly £2 billion Already Saved
Without any further change to the LGPS, the cost of the scheme is reducing from 20% to 16.4% for future service now and will drop further to 14.4% in a few years time. All these savings have benefited the employers. Members are actually contributing more than was predicted when the LGPS 2008 was introduced - 6.5% on average instead of the 6.3% that was expected. The employer cost of today’s LGPS for future service is therefore heading towards 7.9%.
The reduction in cost for the employers outlined above generates immediate cash savings for them of £1.7 billion as the total employer contribution to the LGPS is reduced.
If the Osborne-Pickles LGPS tax goes ahead and scheme members are forced to generate another 3.2% of savings, the employer’s contribution to the scheme will fall further to less than 7% for future service (6.7%). The total cash savings will be £2.6 billion, almost three times as much as the Chancellor stated in October, with a further £600 million further savings generated in the future as the LGPS 2008 cost falls as designed.