LGPS and inflation

A_T

As I understand it the LGPS pension is inflation-linked - if we get a few years of inflation at 10% how will it meet it's obligations? Will the government top it up or is the scheme allowed to pay less than inflation? Or is there some other solution?

arnoldy

Legally it will have to be funded by Local Council taxpayers (local community charge increase), an increase in employee rates, or cuts in local council spending elsewhere, or funding via central government taxes, or a mixture of above. 

daveyjp

As LGPS is a fully funded pension (it pays out from assets, which in 2019 was £291bn)  it has actuary reviews every 3 years  to demonstrate it can meet its obligations to those already retired and those currently in the scheme. 

As the reviews look over the very long term, adjustments can be made over the long term.  

The next review is 2022.

Nebulous2

A_T said:

As I understand it the LGPS pension is inflation-linked - if we get a few years of inflation at 10% how will it meet it's obligations? Will the government top it up or is the scheme allowed to pay less than inflation? Or is there some other solution?

There are constant arguments about LGPS funding. It is unusual in terms of public sector funds in that it has considerable assets to meet its obligations. As with most defined benefit schemes it also has considerable liabilities in respect of pensions owed. The fund is revalued every three years, to see how far the fund is from having enough to meet its liabilities. The contribution rate for the employers who use it is then set for the next three years. 

Depending on where in the cycle we are, nothing may happen for some time, but its very possible contribution rates will increase, possibly substantially at some point over the next three years.  

Compare that with most other public sector schemes however - such as the NHS pension, which isn't funded at all. You could certainly argue that LGPS is in a better place than those unfunded schemes.  

chiefie

The Tories are already planting stories in the press about the inequality (their words) of pension increases for public sector pensions. They will start to ramp this up - the best way to rule is to have the population arguing between themselves 

Silvertabby

chiefie said:

The Tories are already planting stories in the press about the inequality (their words) of pension increases for public sector pensions. They will start to ramp this up - the best way to rule is to have the population arguing between themselves 

Haven't seen these stories - do you mean the GMP increases for those who reach SPA post 2016, or that public sector increases are uncapped?  

SouthCoastBoy

https://www.telegraph.co.uk/pensions-retirement/news/pensions-minister-admits-gold-plated-pension-unsustainable/

Silvertabby

SouthCoastBoy said:

https://www.telegraph.co.uk/pensions-retirement/news/pensions-minister-admits-gold-plated-pension-unsustainable/

Thanks, but there's a paywall.  

xylophone

Thanks, but there's a paywall.  

Opperman is Britain's "longest serving pensions minister" apparently.... and presumably not short of a penny or two .....

To summarise Opperman's comments:-

Public Sector pensions "not sustainable"....."should be reformed"... "must be moved to a different type of pension".........

Reporter goes on to  state that while public servants of various kinds have tax payer funded guaranteed salary linked pensions with guaranteed inflation protection, other workers are dependent on the vagaries of the stock market.

She also states that because of the calculation method used, the DB Lifetime Allowance works out much more generously for those with such pensions.

And a Financial Planner was quoted as saying that public sector pensions are not sustainable in the long run and that to  guarantee an income  for a 30-year retirement in the face of world uncertainty is madness.

SouthCoastBoy

Silvertabby said:

SouthCoastBoy said:

https://www.telegraph.co.uk/pensions-retirement/news/pensions-minister-admits-gold-plated-pension-unsustainable/

Thanks, but there's a paywall.  

Not sure it is behind a paywall as I could read the article and not a subscriber, I just closed the pop up window

drummersdale

Another comment in that article (albeit not from the same minister) was “However, any cuts to public sector schemes would likely need to be counteracted by pay rises as compensation”  I expect the former to be true, the latter to be very unlikely.